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MNI: Globe's Non-Inflationary "Speed Limit" Falling-World Bank

Photo by Andrew Stutesman on Unsplash

The global economy's "speed limit" of non-inflationary growth could drop to the lowest in three decades without a renewed commitment to boosting investment, labor force participation and free trade, the World Bank said in a report Monday.

"Nearly all the economic forces that powered progress and prosperity over the last three decades are fading," President David Malpass said in an introduction to the report. Long-term potential growth is expected to decline to 2.2% by 2030, from 2.6% over the decade ending in 2021 and 3.5% in the first decade of this century, according to a staff analysis.

The warning echoes other prominent economists arguing central banks may need permanently higher interest rates to deal with stubborn price gains following the shocks of the Covid pandemic and a loss of labor and trade competitiveness. (See: MNI INTERVIEW: Era of Shortages To Force Rates Up - Bill White)

The OECD report predicts investment growth over 2022-24 will be half the pace of the last two decades and says the global labor force is expanding "sluggishly." Trade growth used to double GDP gains and the two are now about the same. Declining potential growth could be reversed with higher investment, aligning fiscal and monetary policy, cutting trade costs, boosting labor force participation and greater global cooperation, the report found.

MNI Ottawa Bureau | +1 613-314-9647 |
MNI Ottawa Bureau | +1 613-314-9647 |

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