Wednesday, January 06, 2021

World Bank has lowered its projections for global growth in the 10 years that began in 2020

See Covid-19 Aftermath Could Spell a ‘Lost Decade’ for Global Economy, World Bank Says: Bank lowers growth outlook as pandemic disrupts trade, investment and education by Yuka Hayashi of The WSJ. Excerpt:

"Even before Covid-19, the World Bank had lowered its projections for global growth in the 10 years that began in 2020. The pandemic is exacerbating that trend, raising the prospect of a “lost decade” ahead, the World Bank said Tuesday, as it also cut its forecasts for the coming year.

The bank’s semiannual Global Economic Prospects report attributes the long-term downgrade to lower trade and investment caused by uncertainty over the pandemic, along with disruptions in education that will hamper gains in labor productivity.

“If history is any guide, unless there is substantial reform, we think the global economy is headed for a decade of disappointing growth outcomes,” Ayhan Kose, the bank’s acting vice president for equitable growth and financial institutions, said in an interview.

Before the pandemic, the bank projected that potential global growth between 2020 and 2029 would slow to a yearly average of 2.1%, from 2.5% in the previous decade, as a result of aging populations and lower productivity growth. On Tuesday the bank lowered its projection to 1.9%. Potential output assumes the world economy is operating at full employment and capacity."

It might not seem like a big deal to drop from an annual growth rate of 2.5% to 1.9%. But if, for example, your annual income is $30,000 and it grows 2.5% in each of the next 10 years, it will be $38,400. If it only grows 1.9%, it will end up at $36,200.

That is roughly a $2,200 difference and that means alot to most people.

Each year you would make a little bit more at the 2.5% rate. Adding up the differences for each of the 10 years comes to about $11,300. 

This reminds me of the Rule of 72. If you want to know how long it will take a number to double, divide 72 by its annual growth rate. An economy that grows 2.5% a year will double in 28.8 years while the economy that grows 1.9% a year will double in 37.9 years. It will take an extra 9 years to double incomes.

Related post:

Does Democracy Cause Only A Slight Gain In Economic Growth?

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