A world with anemic growth is the future. The International Monetary Fund (IMF) is once again raising the alarm. During the Spring Meetings, Kristalina Georgieva’s institution (who will see the renewal of her mandate) underlines that more needs to be done on the productivity front. Global GDP expansion will slow to a few decimals above 3% by 2029. About one percentage point less than the pre-Covid twenty-year average. Without an increase in productivity on a global scale, the latest study by the Washington institution points out, there will be a significant slowdown in developed countries. A scenario which, combined with the rise in public debts, could create a vicious circle.
Two wars, Ukraine and the Middle East. A cooling of the fibrillations on consumer prices, as demonstrated by the US experience, is more complicated than expected. Trade conflicts, for example the one between the United States and China, which cannot find a point of balance. An ecological transition in the balance, especially because governments’ green incentives are running out. It is a technological race, largely linked to the development of artificial intelligence (AI), which is diverting resources from other industrial sectors. The scenario outlined by economists Nan Li and Diaa Noureldin is more complex than expected. In the blog accompanying the speech, it is underlined that “the world economy is facing a sobering reality”. And, scrolling through the analysis, the current trend is clear. “The global growth rate, devoid of cyclical ups and downs, has slowed steadily since the global financial crisis of 2008-2009. Without political intervention and without taking advantage of emerging technologies, it is unlikely that the stronger growth rates of the past will return,” the experts underline.
Uncertainty is marked, the unknowns about the fate of global GDP are the same. “Faced with several headwinds, future growth prospects have also tightened. According to the five-year projections of our latest World Economic Outlook, global growth will slow to just over 3% by 2029,” highlights the IMF. “Our analysis shows that growth could fall about a percentage point below the pre-pandemic average (2000-19) by the end of the decade,” they say. Then the awareness. This dynamic, underlines Washington, “risks canceling out the improvements in living standards and the unevenness of the slowdown between the richest and poorest countries could limit the prospects for global income convergence”. A persistent low growth scenario, combined with high interest rates, “could put debt sustainability at risk, limiting the government’s ability to counter economic slowdowns and invest in social or environmental initiatives”. Furthermore, it is noted, “expectations of weak growth could discourage investments in capital and technologies, worsening the slowdown”. All of this is exacerbated by “strong headwinds resulting from geoeconomic fragmentation and harmful unilateral trade and industrial policies.” Globally
The picture is complicated to read. But as the authors of the report point out, there is room for a hint of hope. “A series of policies – from improving the allocation of labor and capital among companies to managing labor shortages caused by aging populations in major economies – could overall revive growth in the medium term,” it notes. The key drivers of economic growth “are labor, capital, and the efficiency with which these two resources are used, a concept known as total factor productivity.” Among these, it is underlined, “three factors, more than half of the decline in growth after the crisis was determined by a deceleration in the growth of TFP (total factor productivity, i.e. the remaining part of output exceeding labor and capital inputs, ndr)”. And TFP increases “with technological advances and better allocation of resources, allowing labor and capital to move to more productive firms.” A working, as well as generational, flexibility that could be instrumental in creating the companies of the future.
According to United Nations projections, the analysis states, “population pressures are set to increase in most major economies, causing an imbalance in global labor supply and dampening global growth.” The working-age population, it is noted, “will increase in low-income countries and some emerging economies, while China and most advanced economies (excluding the United States) will have to face a contraction in the workforce.” By 2030, IMF economists explain, the growth rate of global labor supply is expected to fall to just 0.3%, a fraction of its pre-pandemic average. A certain misallocation of resources, in this case, “could correct itself over time, when labor and capital gravitate towards the more productive companies”. This will go some way to “mitigating the TFP slowdown, even if structural and political barriers will continue to slow the process. Technological innovation could also mitigate the slowdown.” Solutions that are feasible but which, without the impetus of proactive public policies, cannot be functional in improving global expansion. The problem is that the time for a change of direction is increasingly shorter.