Unless policymakers take bold steps to increase labor supply, productivity, and investment, the average potential global economic growth would plunge to a three-decade low of 2.2% per year through 2030, ushering in a “lost decade” for the global economy, the World Bank warned on Monday.

In a recent analysis, it was said that failure to reverse the anticipated broad-based slowdown in potential gross domestic product (GDP) growth will have grave consequences for the global community’s ability to combat climate change and alleviate poverty.

However, the analysis suggested that coordinated efforts to increase investment in sustainable industries, lower trade costs, capitalize on the expansion of services, and increase labor force participation may raise potential GDP growth by up to 0.7 percentage points to 2.9%.

According to Indermit Gill, chief economist of the World Bank, “a lost decade could be in the making for the global economy,” however he added that incentives for labor, higher productivity, and faster investment could buck the trend.

Ayhan Kose, director of the World Bank’s forecasting section, told reporters that the World Bank is also keeping an eye on developments in the banking industry, which come as higher interest rates and tighter financial conditions drive up the cost of borrowing for developing nations.

If a new global financial crisis breaks out, especially if it is accompanied by a worldwide recession, “the downturn we are portraying… might be much sharper,” Kose said, adding that recessions could negatively affect growth prospects for years.

The average GDP growth rate serves as a kind of “speed limit” for the world economy, indicating the fastest pace of expansion possible over the long term without causing excessive inflation.

The COVID-19 pandemic and Russia’s invasion of Ukraine, among other problems, had stopped nearly three decades of steady economic expansion, according to the research. This added to growing concerns about reducing productivity, which is necessary for income growth and better wages.

The average potential GDP growth was therefore projected to decline to 2.2% from 2022 to 2030, from 2.6% in 2011 to 21, and to be roughly a third lower than the 3.5% rate observed from 2000 to 2010.

Poor investment will also cause developing economies’ average GDP growth to decrease, from 5% in 2011–2021 and 6% from 2000–2010, to 4% for the remainder of the 2020s.

Over the past three decades, one out of every four emerging countries achieved high income status thanks to rising productivity, greater incomes, and falling inflation; however, the report noted that these economic dynamics are currently in decline.

It stated that international trade was expanding at a considerably slower rate and that investment growth in 2022–2024 would be half that observed in the previous 20 years, with productivity set to grow at its weakest rate since 2000.

Policymakers should put a priority on containing inflation, ensuring financial sector stability, and decreasing debt while promoting climate-friendly investments that might boost yearly potential GDP by 0.3 percentage points in order to shift the trajectory.

It called for changes to remove the current bias toward carbon-intensive goods inherent in many countries’ tariff schedules and eliminate barriers on access to environmentally friendly goods and services, saying that lowering the costs associated with shipping, logistics, and regulations could boost trade.

Policymakers should put a priority on containing inflation, ensuring financial sector stability, and decreasing debt while promoting climate-friendly investments that might boost yearly potential GDP by 0.3 percentage points in order to shift the trajectory.

It called for changes to remove the current bias toward carbon-intensive goods inherent in many countries’ tariff schedules and eliminate barriers on access to environmentally friendly goods and services, saying that lowering the costs associated with shipping, logistics, and regulations could boost trade.