Global economic growth may have peaked, unless governments make some changes: World Bank
Every major region in the world is experiencing an increase in economic growth going into 2018, but the World Bank warns it might not last.
“The broad-based recovery in global growth is encouraging, but this is no time for complacency,” World Bank Group President Jim Yong Kim said in a statement.
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According to the latest edition of the World Bank’s Global Outlook report, the world economy is in the midst of a “broad-based cyclical upturn,” which will see annual global GDP rise to 3.1 per cent this year and stay at that level until 2020.
However, this good news comes with the caveat that due to several years of dragging productivity growth, weak investment and a rapidly aging workforce, there has been a significant slowdown in “potential growth.”
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“The issue is that in a sense, the global economy is close to its potential in terms of productive capacity. So, over the longer period of time, the growth is driven by how much labour you have, how much capital you have, what type of technology you are using and how that translates into productivity,” said M. Ayhan Kose, the director of the Development Prospects Group at the World Bank and one of the authors of the report.
Kose explained that the growth experienced in 2018 will likely represent a cyclical recovery, which can also be described as a rebound from very weak growth in previous years.
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“We fear that this [is an] upturn we will observe, and then it [will be] over. We will converge to a growth rate that is likely to be lower than the growth rate we are enjoying right now.”
Kose added that an aging workforce will continue to put additional stress on the world economy, prompting governments to implement policy to drive productivity and encourage workers to stay in the labour force longer.
Several sets of statistics were released in 2017, indicating that Canada would experience issues with an aging population over the next few decades, putting pressure on older Canadians to stay in the workplace longer and in turn putting additional strain on younger generations.
“You’ll need to undertake measures to increase the labour force participation rate. You’ll need to bring older sections of society into the labour force so they’re in the labour force for a longer period of time… And you will see that in Europe, you will see that in Japan, and you will see that in some other countries as well,” Kose said.
Kose emphasized that governments have the ability to turn things around, by implementing policies with long-term structural goals. Emerging economies will play a large role in countering the economic slowdown predicted in the next few years.
Governments in emerging economies such as Africa can play a large role by ensuring that young people entering the workforce are educated and healthy, meaning that investments in high-quality schooling and health-care services are crucial.
“For emerging and developing economies, it’s critical for them to employ policies that include more education — and it’s not just providing more education — but high quality education…. And then investing in health outcomes is very important. When you invest in early childhood development and make sure that kids are healthy in their early ages, it makes a big difference down the road for them.”
To conclude, however, Kose surmises that governments must be open to making changes to ensure high productivity, a healthy, educated labour force, and efficiently-functioning institutions.
“In terms of new-term growth, we are quite optimistic, but for long-term growth, we see challenges. But, these challenges are not insurmountable.”
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