The global economy is in danger of suffering a lost decade of growth, which would be even more severe if the current financial turmoil sparked a global recession, according to new research from the World Bank.
The international organisation warned on Monday that the Covid-19 pandemic and Russia’s invasion of Ukraine were set to create lasting damage to economic performance, undermining efforts to improve global living standards, reduce poverty and address climate change.
Its research showed that recent setbacks to the world economy have had more lasting effects and would reduce growth rates this decade by a third, compared with the first 10 years of this century.
Indermit Gill, the World Bank’s chief economist, said the fall in the level of sustainable growth was caused by “less work, less investment and less trade” than in the more rapid periods of growth and development in the 1990s and 2000s.
The bank projected that the growth rate the global economy could sustain this decade would be only 2.2 per cent a year for the rest of this decade, down from annual rates of 2.6 per cent between 2011 and 2021 and 3.5 per cent in the first decade of this century.
The average global growth rates are calculated market exchange rates and are lower than comparable figures from the IMF which gives more weight to developing countries.
The research showed that the pandemic created huge uncertainties for companies and lowered investment growth rates in the world to an annual rate of 3.5 per cent, half the level of the past two decades.
It also harmed children’s education, which in turn hit workplace skills and led to fewer people working than had been expected, across a large number of countries.
Russia’s invasion of Ukraine increased uncertainties and reduced investment further, especially in Europe, the World Bank said. Geopolitical tension since 2010 had left global trade barely growing as fast as the world economy.
Ayhan Kose, who runs the equitable growth, finance and institutions work at the World Bank, said the combination of these factors means “the golden era of development appears to be coming to an end”.
With the bank’s stress on the lasting damage from crises, whether related to health, economics or geopolitics, he said the past two week’s turmoil in financial markets were of great concern for economic prospects now and for the next four to five years.
“What we know is that the slowdown [in global growth prospects] could be much sharper if another financial crisis erupts, especially if it is accompanied by another global recession,” he said.
The World Bank stressed that a decade of lost growth was not inevitable, but required “a Herculean collective policy effort to restore growth in the next decade to the average of the previous one”.
The most promising routes to higher growth around the world were ensuring a big boost to investment and labour force participation, particularly of women and older workers.