The World Bank has warned that an expected economic slow-down in China could have a significant impact on global growth, potentially leading to the lowest levels seen this century. The bank has proposed measures to prevent what it describes as a “lost decade” of growth. According to the World Bank’s statement, the world’s potential growth rate, which is the maximum long-term growth rate without causing inflation, will slow to an average annual rate of just 2.2 percent this decade.
The bank cites a range of factors that are contributing to the slowdown, including the ongoing impact of the Covid-19 pandemic, the conflict in Ukraine, and risks to the financial sectors in Europe and the United States. As a result, the bank is predicting that the global economy will expand by just 1.7 percent this year.
Despite these challenges, the World Bank believes that China’s economy will help prevent the global economy from falling into a recession, due to an expected annual growth rate of five percent this year. However, the bank warns that China’s ability to sustain global growth will diminish as its own growth slows in the coming years.
According to World Bank Chief Economist Indermit Gill, “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. Then the question is, what will we replace China with?”
The bank believes that the solution lies in making the biggest structural changes that each country can to keep their economies running. The bank’s report highlights three main changes that the global economy needs to make to lift potential growth higher: greater investment in capital and human capital, working 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.”
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