WORLD BANK: Global growth will peak this year and then decline

January 10,2018

• Global growth is predicted to peak this year, due to slowing productivity, weak investment and changing demographics, the World Bank said.
• Prioritizing productivity reforms could be one solution in the face of high employment and aging populations, the Bank’s report said.
• Long term, a slowdown in growth could worsen global living standards and exacerbate poverty levels.

LONDON — Global growth is likely to peak this year and decline going forward, due to a slowdown in productivity, weak investment and ageing workforces worldwide, the World Bank has said.

According to a new report, global economic growth will edge up to 3.1% in 2018 after a much stronger than expected 2017, driven by the recovery in investment, manufacturing and trade. But momentum is then likely to wane, and growth is projected to drop back to 3% in 2019 and 2020, with the slowdown likely to extend into the next decade.

“The broad-base recovery in global growth is encouraging but this is no time for complacency,” said World Bank President Jim Yong Kim.

“This is a great opportunity to invest in human and physical capital. If policy makers around the world focus on these key investments, they can increase their countries’ productivity, boost workforce participation, and move closer to the goals of ending extreme poverty and boosting prosperity,” he said.

Risks to growth include escalating trade restrictions, rising geopolitical tensions and global workforces operating at full or near full capacity, the report said. In the face of high employment and aging populations, productivity-enhancing reforms could be one answer, the Bank’s economists said.

Over the longer term, slowing potential growth could jeopardize living standards and worsen global poverty levels, the report said.

This year, for the first time since the 2008 financial crisis, most advanced and developing economies are expected to close the output gap between actual and potential economic growth, the report said.

This could mean a removal by central banks in advanced economies of the extraordinary policies pursued after the crisis to ease its effects, and policymakers must look beyond fiscal tools to generate growth, it said.

“An analysis of the drivers of the slowdown in potential growth underscores the point that we are not helpless in the face of it,” said World Bank Senior Director for Development Economics Shantayanan Devarajan.

“Reforms that promote quality education and health, as well as improve infrastructure services could substantially bolster potential growth, especially among emerging market and developing economies. Yet, some of these reforms will be resisted by politically powerful groups, which is why making this information about their development benefits transparent and publicly available is so important.”

Growth in advanced economies is expected to be 2.2% this year, while growth in emerging market and developing economies is projected to strengthen to 4.5%, as activity in commodity exporters continues to recover, the Bank said.

Here’s the table: