WORLD BANK REPORT
1. Context
New research published by the World Bank, titled “Falling Long-Term Growth Prospects”, argues that the current decade (2020-2030) could be a lost decade in the making not just for some countries or regions as has occurred in the past but for the whole world.
2. Key Highlights of the Report
- The report " Falling Long Term Growth Prospects: Trends, Expectations, and Policies is published by the World Bank.
- The report uses a comprehensive database of multiple measures of potential growth.
- It examines trends in potential growth and its drivers, global and regional prospects for potential growth and investment over the 2020s, and a range of policy options to lift potential growth.
- It documents three major findings, First, there has been a protracted, broad-based decline in potential growth and its underlying drivers. Major adverse shocks also reduce potential growth by leaving a lasting impact on these drivers.
- Second, the slowdown in potential growth is expected to persist for the rest of this decade.
- Third, while they are significant challenges confronting emerging markets and developing economies (EMDEs), they are not insurmountable.
- It is possible to reverse the slowdown in potential growth and chart a sustained, sustainable, and inclusive growth path by implementing ambitious, broad-based, and forceful policies at the national and global levels.
3. What are the reasons for the slowdown?
- The biggest reason for the slowdown is that the EMDEs are in the midst of a prolonged period of weakness.
- Look at the data for actual GDP growth and per capita GDP growth in the two tables (A.1 and A.3) below.
It shows a broad-based decline over the past two decades whether a country belongs to EMDEs or middle-income countries (MICs) or low-income countries (LICs).
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Image source: World Bank
- The World Bank has looked at a whole set of fundamental drivers that determine economic growth and found that all of them have been losing power.
- These fundamental drivers include things like capital accumulation (through investment growth), labor force growth, and the growth of the total factor productivity (which is the part of economic growth that results from more efficient use of inputs and which is often the result of technological changes), etc.
- Not surprisingly then, the potential growth rate is expected to decelerate further.
4. What about India?
- Even though India has also lost its growth momentum over the past two decades, it will likely remain a global leader when it comes to growth rates.
- India falls under the South Asia Region (SAR), which is expected to be the fastest-growing among emerging market and developing economies (EMDEs) for the remainder of this decade.
- To be sure, India accounts for three-fourths of the SAR output.
- SAR includes countries like Afghanistan, Pakistan, Sri Lanka, Nepal, Bangladesh, etc.
- Economic activity in the South Asia region (SAR) rebounded strongly from the recession caused by the COVID-19 pandemic, expanding by 7.9 percent in 2021 after a drop of 4.5 percent in 2020.
- Output in the region is on track to grow by about 6.0 percent a year between 2022 and 2030, faster than the 2010s annual average of 5.5 percent and only moderately slower than growth in the 2000s, states World Bank.
5. What can be done to boost potential global growth?
According to the World Bank, if all countries make a strong push, potential global GDP growth can be boosted by 0.7 percentage points to an annual average rate of 2.9%; this would be faster than the preceding decade (when the global economy grew by 2.6%) but still slower than the first decade of the 2000s (when the growth clocked 3.5% per annum).
There are six priority interventions suggested by the report:
- Incentivize investments in the economy,
- Boost labour force participation rates (especially for women),
- Cut trade costs,
- Capitalize on service exports,
- Improve global cooperation, and ensure that fiscal policies and monetary policies don’t run against each other
- For instance, Government expenditures raise deficits at a time when central banks are trying to contain inflation.
For Prelims
| For Preims: World Bank, Falling Long-Term Growth Prospects, Emerging markets, and developing economies (EMDEs), Middle-income countries (MICs), or Low-income countries (LICs), Gross Domestic Product (GDP), GDP Growth rate and South Asian Region (SAR). |
Previous year Question
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1. Which one of the following is not a sub-index of the World Bank's 'Ease of Doing Business Index? (UPSC 2019)
A. Maintenance of law and order
B. Paying taxes
C. Registering property
D. Dealing with construction permits
Answers: A
2. Which one of the following issues the 'Global Economic Prospects report periodically? (UPSC 2015)
A. The Asian Development Bank
B. The European Bank for Reconstruction and Development
C. The US Federal Reserve Bank
D. The World Bank
Answer: D
3. Consider the following statements
The price of any currency in the international market is decided by the (UPSC 2012)
1. World Bank
2. demand for good/services provided by the country concerned
3. stability of the government of the concerned country
4. economic potential of the country in question
Which of the statements given above is correct?
A. 1, 2, 3 and 4
B. 2 and 3 only
C. 3 and 4 only
D. 1 and4 only
Answer: B
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Source: The Indian Express
