World Growth Projected To Stall By IMF
World growth fell in the wake of the 2008 financial crisis and the International Monetary Fund thinks the economy is “likely to lag for years.”
The world’s potential for growth has been slowing since before the financial crisis due to aging populations and a drop in technological innovation, according to the IMF.
Declines in private investment and employment cut annual potential growth in these countries to 1.3 percent between 2008 and 2014, half a percentage point lower than before the crisis, according to the IMF study.
The study is part of the IMF’s twice-yearly World Economic Outlook, which investigates how to increase growth as the world’s economic policy-makers prepare to gather in Washington next week for the IMF and World Bank’s spring meetings. Over the next five years, advanced economies’ annual growth potential should increase to 1.6 percent, still below pre-crisis growth rates, meaning it is more difficult to decrease high public and private debt, according to the IMF.
Because interest rates are low, “monetary policy in advanced economies may again be confronted with the problem of the zero lower bound if adverse growth shocks materialize,” the IMF said.
Weak demand in the eurozone and Japan could lead to even lower growth than forecast.
Potential annual growth decreased to 6.5 percent from 2008 to 2014, approximately 2 percentage points lower than before the crisis, and is anticipated to fall to 5.2 percent over the next five years as populations age, structural constraints slow capital growth, and productivity slows.
A drop in growth potential for China, the world’s second-largest economy could be even further as it transititions away from an investment led economy to a consumption one.
The Fund urged rich economies to support demand and investment, including more funding for research and development and infrastructure. Emerging economies should also boost infrastructure spending, get rid of excessive regulation, and improve the quality of education, it said.