The International Monetary Fund (IMF) said in its latest world economic outlook report on Wednesday that the global growth rate is likely to fall to 2.8% by the end of the decade, a full percentage point below the historical average.
The IMF said the decline in productivity growth is responsible for more than half of the economic slump in advanced economies, as well as emerging markets and low-income countries.
“A persistent low-growth scenario, combined with high interest rates, could put debt sustainability at risk – restricting the government’s capacity to counter economic slowdowns and invest in social welfare or environmental initiatives. Moreover, expectations of weak growth could discourage investment in capital and technologies, possibly deepening the slowdown. All this is exacerbated by strong headwinds from geoeconomic fragmentation, and harmful unilateral trade and industrial policies,” the IMF said. However, it added the trend could be reversed with policies that “address resource misallocation by improving the flexibility of product and labor markets, trade openness, and financial development.”