A structural slowdown is tightening its grip on the global economy. Investment growth has halved, productivity gains are thinning, and trade no longer outpaces output.
Without decisive reform and a coordinated global investment push, potential growth could decline to its lowest level in three decades, reshaping the economic trajectory of emerging markets for years to come.
Global Investment Slowdown Threatens Long-Term Growth
The global economy is confronting a deeper structural shift: the weakening of potential growth.
Across emerging market and developing economies (EMDEs), investment growth has slowed sharply, total factor productivity (TFP) gains have faded, and demographic dividends are narrowing. This is according to the World Bank’s “Falling Long-Term Growth Prospect Part III.”
If current trends persist, global potential GDP growth could fall to around 2.2% annually over the remainder of the 2020s, down from 2.6% between 2011and 2021 and 3.5% in the early 2000s.
For EMDEs, potential growth could decline to roughly 4%, compared with 6% between 2000 and 2010.
This is not a cyclical pause. It is a structural downshift.
The World’s Growth Speed Limit Is Falling
Potential growth, an economy’s “speed limit”, — determines how fast incomes can rise without stoking inflation.
However, the global speed limit is slowing.
The average investment growth rate between 2022 and 2024 was projected to be roughly half the average of the previous two decades.
Trade growth, once twice the pace of GDP expansion, now barely matches it. Working-age population growth has declined to its lowest level in three decades.
Recessions, banking crises, and pandemics have inflicted lasting damage on potential output through weaker capital accumulation, employment, and TFP.
The slowdown is broad-based, persistent, and policy relevant.
Investment, Productivity and Demographics Weaken
- Investment: Time for a Big Push – Global investment growth has decelerated sharply since the global financial crisis, with EMDE investment projected to grow about 3.5% annually, roughly half the average of between 2000 and 2021.
Weak investment growth reduces:
- Capital deepening
- Infrastructure quality
- Climate adaptation capacity
- Productivity spillovers
Climate and SDG-aligned investment needs are substantial. Meeting climate goals alone could increase growth potentials by up to 0.3 percentage points annually if well-designed and fiscally sustainable.
- Productivity: The TFP Slowdown – Total factor productivity growth has weakened across advanced economies and EMDEs.
Drivers include:
- Slower technology diffusion
- Weak firm-level dynamism
- Reduced sectoral reallocation
- Trade fragmentation
Without stronger productivity gains, income convergence slows markedly.
- Demographics: Fading Dividends – Global labour force expansion is slowing due to ageing populations. In many EMDEs, demographic momentum remains positive, but gains are uneven.
Female labour force participation globally remains about three-quarters that of men. In regions such as the Middle East, North Africa, and South Asia, narrowing this gap could uplift growth potential by up to 1.2 percentage points annually by 2030.
Structural Drivers of Potential Growth
Driver | 2000 – 2010 | 2011 – 2021 | Remainder of 2020s (Projection) |
|---|---|---|---|
Global Potential Growth | 3.5% | 2.6% | 2.2% |
EMDE Potential Growth | 6.0% | 5.0% | 4.0% |
EMDE Investment Growth | 7% average | 5% average | 3.5% |
Trade Growth (vs GDP) | 2x GDP | ≈ GDP | ≈ GDP |
Policies Can Reverse the Downshift
The slowdown is not inevitable.
If countries replicate their strongest historical reform episodes and implement coordinated investment pushes, global potential growth could rise by up to 0.7 percentage point annually .
Priority reform levers include:
1. Investment Acceleration
- Improve business climates
- Strengthen property rights
- Deepen financial markets
- Mobilize private capital
2. Trade Cost Reduction
Trade costs — including logistics and regulatory barriers — can double the price of traded goods . Lowering these costs could significantly raise productivity.
3. Services-Led Digital Growth
Digitally delivered services exports have expanded rapidly, rising from 40 percent to more than 50 percent of total services exports between 2019 and 2021 .
Digital adoption, ICT diffusion, and human capital investments can boost services productivity and exports — particularly in EMDEs.
4. Institutional and Governance Reform
Robust macroeconomic frameworks — aligned fiscal and monetary policy, debt sustainability, and financial sector stability — strengthen investor confidence .
Institutional reform remains one of the strongest correlates of durable growth acceleration.
Action: Reform, Invest, Cooperate
The policy window is narrowing.
A synchronized reform and investment agenda is required:
- Scale climate-aligned infrastructure
- Increase female and older worker participation
- Remove barriers to digital trade
- Strengthen global cooperation on debt transparency and financing
- Align fiscal and monetary frameworks
Global cooperation is essential. From 1990 to the mid-2010s, coordinated integration fueled rapid poverty reduction. Fragmentation now risks compounding the slowdown .
Without reform, the world risks a lost decade.
Path Forward: Reignite Investment, Restore Productivity Momentum
Reversing the structural slowdown requires a coordinated global investment push grounded in credible macroeconomic frameworks and institutional reform.
By strengthening human capital, reducing trade costs, mobilizing private capital, and enhancing labor participation, countries can raise potential growth, restore income convergence, and secure long-term development gains.
