Warnings of 'Lost Decade' for Global Economic Potential

Since the early 1990s, the global economy has experienced significant growth over the last three decades. After an incredible run, the global economy may be headed for a major deceleration. The World Bank has issued a warning that the global economy’s long-term growth potential may be anemic over the next decade, mostly diminished due to Russia’s conflict with Ukraine, ongoing pandemic restrictions, social unrest, and redistribution of global wealth. This situation could potentially result in a “lost decade,” resembling the stagnant and subdued economic conditions experienced in Japan in the 1990s or Latin America in the 1980s.

Such economic reversal may lead to a relative increase in poverty rates and a reduction of global efforts to address the impact of climate change. The pandemic has already caused significant economic disruptions and straining of public health systems. Russia’s invasion of Ukraine has further disrupted the global food supply and commodity markets that rattle international ties. In the report, the World Bank predicted that the average potential global output is set to decline significantly, reaching a 30-year low of 2.2 percent per year between 2023 and 2030. This represents a substantial drop from the 3.5 percent per year rate observed during the first decade of the 21st century. Developing economies, in particular, are expected to experience a more pronounced decline, with their annual growth rate potentially dropping from 6 percent between 2000 and 2010 to less than 4 percent in the current decade.

Officials at the World Bank have warned that the current phase of rapid technological advancement and economic growth, also known as the "golden era," seems to be closing. We see the possibility of this decline in the mass tech industry layoffs and the uncertainty of the future of prominent cryptocurrencies. The organization emphasizes the importance of effectively addressing global challenges that rely on significant economic growth in developed nations such as the U.S., China, and the EU, as well as developing countries in Africa and Asia. To stimulate productivity gains and innovation, policymakers, legislators, and central bankers worldwide must employ innovative monetary, fiscal, and trade policies. 

Globally, productivity has decreased, which measures an employee's work output per hour, but this is not due to a decrease in working hours. In the United States, labor productivity experienced a significant decline of 4.1% in the previous year, the most significant drop since productivity measurement began in 1948. As rapidly aging countries such as Japan and South Korea are already grappling with a shortage of young workers, important demographic factors of the 21st century, including aging, migration, retirement, work hours, and social dynamics, are likely to affect economic growth, prosperity, and social mobility significantly. The aging population and low birth rates of the Western world continue to worry many, but an increase in migration to solve this issue could lead to exploitation. Experts agree that several factors are responsible for the decline in productivity, including high levels of burnout, job dissatisfaction, and a lack of understanding and trust between employers and employees in the remote work era.

Despite the global economic speed limit decrease, the World Bank suggests that coordinated efforts can help improve it once again. Policies that promote international trade and investment bolster globalization and ensure financial stability can enhance the world's economic potential. To boost productivity, it is essential to increase the labor supply through education and immigration and expedite automation to take over routine jobs. Perhaps with these changes, the 2020s will not join the 1980s as a "lost decade of development."