2020 may be another lost decade for global economy

2020 may be another lost decade for global economy

Subject: Economy

Section: External sector

Context:  MD Patra, Deputy Governor of RBI, predicts that the 2020s could be another “lost decade” due to recurring financial crises, the pandemic, and the war in Ukraine accentuating the global slowdown.

Key points:

• A structural slowdown has been spreading across the global economy since growth peaked in 2010, resulting in 10 lost years from 2010.
• About half of this slowdown since 2010 can be attributed to demographic factors such as an ageing population, slowing working-age cohort increases, and declining labour force participation.
• Investment and total factory productivity growth rates are declining, and the engine of trade has weakened significantly.
• The potential growth rate of the global economy has fallen by close to a full percentage point in 2011-21 relative to 2000-10. (World Bank report, ‘Falling Long-term Growth Prospects: Trends, Expectations, and Policies’)
• The global slowdown has pulled down advanced economies and emerging and developing economies alike, but it has imposed a major setback on the latter, pushing back their chances of catch-up or convergence.
• Policy uncertainty at the global level has surged, and forces of de-globalisation and trade and finance disintegration have gained ground.
• EMDEs need to leverage the potential of the services sector to drive productivity growth by investing in ICT infrastructure, securing reduction in trade costs, and supportive business-enabling reforms.