Yahoo Finance Markets may be entering a 'lost decade' for global economic growth amid financial instability and high inflation, World Bank says
The World Bank warned that the global economic growth could average 2.2% for the next decade, the lowest in 30 years.
Reasons include lagging productivity and lasting repercussions of the pandemic, on top of a bank crisis.
In a Monday report, the World Bank said the result "could be a lost decade in the making...for the whole world."
The next 10 years could bring the slowest rate of growth for the global economy in decades as financial instability and high inflation weigh on productivity, according to the World Bank.
In a Monday report, World Bank economists estimated that the global economy's potential growth rate could average 2.2% for the rest of the decade.
By comparison, in the early 2000s, that measure was 3.5%, and it was 2.6% for the most recent decade.
Ongoing inflation pressures, financial uncertainty, and unfavorable demographics will all drag on growth, the economists wrote, adding that an aging population will weaken the labor force in advanced economies, and that international trade has also turned sluggish.
Furthermore, lingering repercussions of the COVID-19 pandemic, including a shock to human capital, will negatively impact growth.
The usual forces that drive economic trends are now retreating, which in turn impacts government policies, spending, and interest rates. A worsening bank crisis may also exacerbate growth constraints, the group said.
"The result could be a lost decade in the making—not just for some countries or regions as has occurred in the past—but for the whole world," the officials said.
Still, the authors of the World Bank report noted that potential GDP growth could be boosted as high as 2.9% if nations focus policy on growing labor supply, increasing productivity, and incentivizing investment.
"All of these things will be curtailed because of weaker potential growth going forward," Ayhan Kose, the group's chief economist, told reporters Monday, per Axios. "The slowdown we're describing could be much sharper if another global financial crisis erupts, especially if that crisis is accompanied by a global recession."
Meanwhile, following January's annual Consumer Price Index reading of 6.4%, US inflation rose 6.0% year-over-year in February, in line with expectations. The Federal Reserve last Wednesday hiked interest rates for the ninth consecutive time with a 25-basis-point increase, smaller than the previous 50-basis-point move.
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