Is Global Growth Doomed?
On Our Radar, 2 April 2023
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One of the stories we have been following is a new report by the World Bank, published at the end of March, which paints a gloomy picture of the prospects of sustained global growth. What it's about: World Bank researchers investigated the drivers of global growth and found that almost all of them have weakened and are unlikely to recover before the end of the decade; and even then only if national governments individually and collectively adopt pro-growth policies, especially "a major investment push grounded in robust macroeconomic frameworks". Why it matters: According to the report, slow growth limits the resources available for addressing major global challenges, such as climate change. Slow growth, and even more so, a sustained recession, will have an adverse impact on poverty reduction, on the delivery of basic services like education, healthcare, and sanitation, and on the achievement of other United Nations Sustainable Development Goals. This, in turn, is likely to increase social tensions and potentially lead to more conflict, especially in already fragile states, many of which are also facing mounting debt problems.
Our take: The consequences of limited growth and the challenges to overcoming them are profound. While sound macroeconomic policies may well be at the heart of the solution, as the World Bank report suggests, they are unlikely to succeed in reviving sustainable growth if the geopolitical conditions in which they are applied worsen. The war in Ukraine--a major man-made shock to the system--is but the tip of the iceberg. And it is also a major bellwether of how major powers can, or cannot, manage their rivalries.
Ukraine is in danger of becoming not only the battleground of a proxy war between Russia and the West, but also another front in the increasingly antagonistic relationship between China and the United States. Driven by Beijing's growing assertiveness and Washington's attempt to contain China's rise, the geopolitical and geoeconomic decoupling of the world's two major power centres is the exact opposite of what is needed: more global trade, more cooperation on debt management, more coordinated investment into addressing shared challenges like climate change.
Geopolitical and geoeconomic tensions also increase uncertainty for businesses, limiting the promise for private sector investment on a global and national scale, as well as hampering meaningful public-private partnerships. Without private-sector buy-in, and a concerted effort to align the incentives for policy and business to work together, it will be impossible to revive the prospects for sustainable growth anytime soon.