Are we in the middle of a "lost decade" for the economy?

A World Bank report on the state of the economy warned that we could enter a "lost decade" if governments do not make bold policy changes boosting investment and cutting trade costs to reverse the trend.

The World Bank warned that ambitious initiatives to boost labor supply, productivity, and investment are necessary to avoid an economic tendency to slow growth rates worldwide. They also said it is vital to raise labor force participation.

The experts are worried that a slowdown in the gross domestic product (GDP) potential growth could leave the world unable to tackle pending problems like climate change and reduce poverty.

GDP growth rates are like a speed limit for the economy. They indicate the maximum speed at which global production can grow without sparking inflation.

The report suggested that investment in sustainable sectors, leverage growth in services, and expanding labor force participation could increase the projected growth by 0.7 points from 2.2% to 2.9%.

"A lost decade could be in the making for the global economy," said World Bank chief economist Indermit Gill, if the policy changes are not made.

Ayhan Kose, director of the World Bank's forecasting group, told Reuters that the World Bank is also watching the developments in the banking sector. She explained that rising interest rates and tightening financial conditions make it harder for developing countries to access loans.

Banking is also going through trust troubles worldwide after the fall of Silicon Valley Bank and Credit Suisse in March. Despite the efforts of the US government to mitigate the crises, the sector was affected worldwide.

The report also warned that a new crisis could be too much for the world economy. "The slowdown we are describing ... could be much sharper if another global financial crisis erupts, especially if a global recession accompanies that crisis," Kose told reporters.

It was precisely overlapping crises that caused this economic slowdown. According to the report, the COVID-19 pandemic, Russia's invasion of Ukraine, and other emergencies ended three decades of economic growth.

The 2,2% GDP growth average expected from 2022-2030 is lower than the 2.6% of 2011-2021 and almost a third down from the 2000-2010 average of 3.5%. It also said productivity was likely to grow at its slowest pace since 2000.

Developing economies had the highest GDP growth rate between 2000 and 2020 but are also more affected by the crises: it has fallen from 5% to 4% since the second decade and two points from the 6% of the first decade.

The report said low investment caused the slowdown in these countries. One out of four developing countries reached a high-income status in the last three decades through rising productivity, higher incomes, and declining inflation, which are now in decline.

The report suggests policymakers should prioritize reducing and controlling inflation to reverse the slowdown. They could add 0.3% to potential annual growth by ensuring the financial sector stability, reducing debt, and boosting trade by lowering shipping, logistics, and regulations costs.

The World Bank insisted that it is also essential to boost sustainable investment. It called to eliminate restrictions on access to environmentally friendly goods and services and bias toward carbon-intensive assets.

The report also explained that increasing the export of digital services and diversifying the working force could boost growth by about 0.2% annually by 2030.