The world’s potential growth — its maximum long-term growth rate without sparking inflation — will slow to an average annual rate of just 2.2 percent this decade, the World Bank said in a statement.
A confluence of factors, including the lingering impact of the Covid-19 pandemic, the war in Ukraine and the ongoing risks to the financial sector in Europe and the United States, are all acting to slow the global economy, which the bank expects to expand by just 1.7 percent this year.
The Washington-based multilateral lender predicts that China’s economy will help keep the global economy from entering a recession due to an annual growth rate of five percent this year.
But its ability to keep the world’s economy afloat will wane as its growth slows in the years ahead, the bank said.
“We’ve grown used to China being the tractor of the global economy, and that will have to change because China’s growth rate is going to go down over time,” World Bank Chief Economist Indermit Gill said during a press conference on Monday.
“Then the question is, what will we replace China with?” he said.
The answer, according to the bank, is a solution that looks to capitalize on the biggest structural changes that each country can make to keep the economy running.
The bank report said the global economy needed to make three main changes to help lift potential growth higher: greater investment in capital and human capital, working for longer hours and using more technology to boost productivity.
“China won’t be replaced by one country,” Gill said. “What we have to do is figure out how every country can do better.”