Falling Long-Term Growth Prospects

Full report | Charts and data | Press release

Across the world, a structural growth slowdown is underway: at current trends, global potential growth—the maximum growth the global economy can sustain over the longer term without igniting inflation—is expected to fall to a three-decade low over the remainder of the 2020s. Nearly all the forces that have powered growth and prosperity since the early 1990s have weakened. The growth rates of investment and total factor productivity are declining. The global labor force is aging, and expanding more slowly. International trade growth is much weaker now than it was in the early 2000s. In addition, a series of shocks has roiled the global economy over the past three years. A persistent and broad-based decline in long-term growth prospects imperils the ability of emerging market and developing economies to combat poverty, tackle climate change, and meet other key development objectives. These challenges call for an ambitious policy response at the national and global levels. The slowdown can be reversed by the end of the 2020s—if all countries replicate some of their best policy efforts of recent decades, including a major investment push grounded in robust macroeconomic frameworks. Bold policy actions at the national level will need to be supported by increased cross-border cooperation and substantial financing from the global community.

PRAISE FOR THE BOOK

“This book presents a sobering analysis of the secular growth slowdown based on the most comprehensive database of potential growth estimates available to date. With nearly all the forces that have driven growth and prosperity in recent decades now weakened, the book argues that a prolonged period of weakness is underway, with serious implications for emerging market and developing economies. The authors call for bold policy actions at both the national and global levels to lift growth prospects. The book is essential reading for policy makers, economists, and anyone concerned about the future of the global economy."

— Beatrice Weder di Mauro
Professor of International Economics, Geneva Graduate Institute, and President of the Centre for Economic Policy Research (CEPR)

"A terrific book that couldn’t be published at a better time. As economic growth is in the midst of a sustained slowdown across regions, there is an urgent need for understanding the factors behind these developments and for identifying policy solutions. This volume tremendously delivers on both fronts and more as it also introduces a comprehensive global database on potential growth that will facilitate much needed research in this area.Undoubtedly, the book’s insightful analysis and policy recommendations will be a useful tool for policy makers around the world for years to come. A tour de force that is a must read!"

— Liliana Rojas-Suarez
Director of the Latin America Initiative and Senior Fellow, Center for Global Development (CGD)

“Economic policy making is becoming increasingly complicated in the 2020s. In addition to tackling traditional tradeoffs in aggregate demand management and improving efficiency on the supply-side, policy makers need to address new priorities and challenges, from addressing climate change and its impacts to improving income distribution, all in the context of lower growth rates, waning productivity growth, and flattening of the globalization process that has brought unprecedented prosperity across the globe and lifted more than a billion people out of poverty. In Falling Long-Term Growth Prospects, the authors do a phenomenal job of assessing these trends at the global and regional levels, identifying and unpacking salient 21st century policy challenges, and providing thoughtful and evidenced-based policy prescriptions for leaders in advanced, emerging market, and developing economies. Importantly, the book underscores that these challenges tend to be global and, hence, global cooperation at all levels is necessary to achieve optimal results. Alas, we seem to be going in the opposite direction; this book offers a roadmap to put us back on the path to creating a more integrated, prosperous, and equitable global community.”

— Michael G. Plummer
Director, SAIS Europe and Eni Professor of International Economics, Johns Hopkins University

"The book is a timely, lucid, and comprehensive compendium of papers analyzing the growth experiences of emerging and developing economies during the last three decades. It especially focuses on the economic slowdown of the last decade and predicts that the slowdown could easily continue for at least another decade. The prognosis is thus stark, and urges timely policy actions. Not just policy makers and practitioners, but equally academics and students will find the book to be a compelling resource for better comprehending the dynamics of the ongoing structural slowdown around the world, specifically in the developing world. This will also enable all the key stakeholders to come up with innovative ways and out-of-the-box solutions to address this worrisome issue. All in all, the book therefore offers compelling reading as well as a roadmap for future policies."

— Poonam Gupta
Director General of the National Council of Applied Economic Research (NCAER), and Member of the Economic Advisory Council to India’s Prime Minister"quote"

"As if the convulsions of COVID, extreme weather events and the Russia-Ukraine war were not enough, developing countries are facing a silent crisis: their long-term growth prospects are declining. This carefully researched and compellingly argued book shows that, thanks mainly to demographic and climate change, potential growth will be significantly lower in the future than in the past. The book also identifies policies that can reverse this trend. We must adopt these policies now; we owe it to our children."

— Shanta Devarajan
Professor of the Practice of International Development at Edmund A. Walsh School of Foreign Service, Georgetown University

"Nobel Laureate Robert Lucas once wrote that the consequences of economic growth for human welfare are staggering and that once one starts thinking about what drives growth “it is hard to think about anything else.” In the aftermath of the Global Financial Crisis, economic growth in emerging and developing economies started slowing down. This important volume shows that this growth slowdown was not fully driven by cyclical factors and that, absent a massive effort, in terms of structural policy reform it may ersist for the remainder of this decade. Without sustained growth and investment, it will be impossible to reach global development goals in terms of poverty reduction or addressing climate change. The volume provides a unified framework centered on the concept of potential growth and, by identifying the drivers of potential growth, it provides a set of empirically grounded policy suggestions aimed at increasing potential growth. It also develops and describes a novel dataset of measures of potential growth covering more than 170 countries for a 40-year period. The book and the associated data will be invaluable tools for researchers who are trying to uncover what Lucas called the 'mechanics of economic development.'"

— Ugo Panizza
Pictet Chair in Finance and Development, Geneva Graduate Institute, and Vice President of the Centre for Economic Policy Research (CEPR)

"This is timely and important work. It breaks new ground by assembling and analyzing the most comprehensive international database to date on potential growth and its drivers. It offers valuable advice on policy options to countries as they face the prospect of slowing long-term economic growth and a range of shocks. An essential reading for both policy makers and more broadly for those interested in current global economic trends and challenges.

— Zia Qureshi
Senior Fellow, Brookings Institution

"This book is a must read for economists and policy makers alike. It provides a new and unique database for potential output growth covering a large set of countries. The book also offers a thorough analysis of the drivers of potential output growth. It argues that the recent weakness in growth will continue for the remainder of the present decade and comes up with policy conclusions to reverse this trend.

— Jakob de Haan
Professor of Political Economy, University of Groningen, The Netherlands

PRESS RELEASE