The International Monetary Fund (IMF) has issued a cautionary assessment of the global economy, indicating a continued deceleration in growth rates since the aftermath of the 2008-09 global financial crisis. According to the IMF’s latest World Economic Outlook, without significant policy intervention and advancements in emerging technologies, the robust growth rates witnessed in previous decades are unlikely to be restored.
The report projects a global growth rate of just above 3 percent by 2029, representing a notable slowdown compared to historical averages. Analysis indicates that by the end of the decade, growth could dip by approximately one percentage point below pre-pandemic levels, posing a threat to improvements in living standards. Furthermore, the uneven nature of this slowdown between developed and developing nations raises concerns about the prospects for global income convergence.
The IMF underscores the risks associated with persistent low growth, particularly in conjunction with high interest rates, which could jeopardize debt sustainability and limit government capacity to address economic downturns or invest in social and environmental initiatives. Additionally, expectations of weak growth may deter investment in capital and technologies, exacerbating the slowdown, amid challenges posed by geoeconomic fragmentation and unilateral trade policies.
Despite these challenges, the IMF highlights potential avenues for reinvigorating medium-term growth through various policy measures. These include initiatives to enhance labor and capital allocation across firms and address labor shortages resulting from aging populations in major economies.
The IMF’s analysis identifies labor, capital, and total factor productivity (TFP) as key drivers of economic growth. Notably, more than half of the growth decline since the financial crisis can be attributed to a deceleration in TFP growth. TFP growth, which is boosted by technological advancements and efficient resource allocation, plays a crucial role in enhancing the productivity of labor and capital across industries.
