Potential Growth Prospects: Risks, Rewards, and Policies

Abstract

Potential output growth around the world slowed over the past two decades. This slowdown is expected to continue in the remainder of the 2020s: global potential growth is projected to average 2.2 percent per year in 2022-30, 0.4 percentage point below its 2011-21 average. Emerging market and developing economies (EMDEs) will face an even steeper slowdown, of about 1.0 percentage point to 4.0 percent per year on average during 2022-30. The slowdown will be widespread, affecting most EMDEs and countries accounting for 70 percent of global GDP. Global potential growth over the remainder of this decade could be even slower than projected in the baseline scenario-by another 0.2-0.9 percentage point a year-if investment growth, improvements in health and education outcomes, or developments in labor markets disappoint, or if adverse events materialize. A menu of policy options is available to help reverse the trend of weakening economic growth, including policies to enhance physical and human capital accumulation; to encourage labor force participation by women and older adults; to improve the efficiency of public spending; and to mitigate and adapt to climate change, including infrastructure investment to facilitate the green transition.

Program-Target Mechanisms to Ensure the Fiscal Balance of the Federal Constituent

“…They revealed the low efficiency of the transfer policies of the federal center [20] and the need to support the regions with the help of federal targeted programs [21,22], and no statistically significant effect of interbudgetary transfers on the degree of socioeconomic potential realization in the regions was determined [23,24]. It should be considered that the large-scale and rapid growth of public investments provided under program-targeted mechanisms often leads to inefficient results due to the limitations in the ability of regional authorities to absorb infrastructure investments [25][26][27][28].…”