In a blog based on chapter 3 of the upcoming World Economic Outlook (WEO), the IMF said weak growth expectations could deter investment, possibly exacerbating the downturn.
“This threatens to reverse improvements in living standards, and an uneven decline between richer and poorer countries could limit the prospects for global income convergence,” the blog said.
The IMF said global economic growth will reach 2.8% by 2030 and that stronger growth is unlikely to bring major policy interventions to boost productivity and boost technology. Increasingly inefficient resource allocation among companies, demographic pressures in major economies and weak business investment have weighed on growth.
The increasingly inefficient allocation of resources among companies has reduced total factor productivity and consequently reduced global growth.
Two additional factors have also slowed growth. Demographic pressures in major economies, where the proportion of the working-age population is shrinking, have weighed on labor growth. Meanwhile, weak business investment has hampered capital formation, the blog noted.
A prolonged low growth scenario, combined with high interest rates, could pose a risk to debt sustainability – limiting the ability of governments to fight economic downturns and invest in initiatives environmental or social welfare.
“All this is exacerbated by strong headwinds from geo-economic fragmentation and harmful unilateral trade and industrial policies,” it said.
The new forecast reflects downward revisions to medium-term growth across all income groups and regions, most significantly in emerging market economies.
Urging countries to take urgent action to counter weakening growth prospects, the IMF warned that this worsens the outlook for living standards and reducing global poverty.
Fiber2 Fashion News Desk (DS)
