{
  "title": "A Low-Growth World Is an Unequal, Unstable World",
  "publication": "IMF Blog, July 23, 2024",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2024/07/23/a-low-growth-world-is-an-unequal-unstable-world",
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  "summary": "Long periods of slow economic growth can cause a jump in inequality. But a balanced set of policies can stave off that outcome.",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Author: Kristalina Georgieva\n- Date: July 23, 2024\n- Core message: Prolonged low global growth risks entrenching poverty and widening within-country inequality, but a balanced set of policies can prevent a low-growth, rising-inequality trap."
    },
    {
      "heading": "Growth outlook and macro risks",
      "content": "- IMF World Economic Outlook update projections:\n  - Global growth expected to reach 3.2 percent this year.\n  - Global growth expected to reach 3.3 percent in 2025.\n  - These figures are well below the 3.8 percent average from the turn of the century until the pandemic.\n- Medium-term growth projections remain at their lowest in decades.\n- Despite resilience to successive shocks (including higher interest rates), the danger is a prolonged period of anemic growth that would entrench poverty and inequality."
    },
    {
      "heading": "Evidence on stagnation and inequality",
      "content": "- New IMF analysis: periods of stagnation lasting four years or more tend to push up income inequality within countries by almost 20 percent—considerably higher than the increase due to outright recession.\n- Mechanisms during stagnation:\n  - Sluggish job creation and wage growth increase structural unemployment.\n  - Reduced share of a country’s income flowing to workers.\n  - Limited fiscal space amplifies widening gaps between top and bottom income groups.\n- Pandemic impacts cited:\n  - Extreme poverty increased after decades of decline.\n  - Global hunger surged.\n  - The long-term decline in inequality across countries stalled."
    },
    {
      "heading": "Gearing Up Inclusive Growth (policy priority 1)",
      "content": "- Diagnosis: Most of the decline in growth in recent decades has been driven by a slump in productivity; labor and capital aren’t flowing to the most dynamic firms.\n- Recommended measures:\n  - Promote competition and improve access to finance to allocate resources more efficiently and boost productivity.\n  - Increase labor force participation (for example, of women) to offset the drag on growth from aging populations.\n  - Preserve open trade as an engine of growth and jobs; over the last 40 years:\n    - Real income per capita has doubled globally.\n    - More than a billion emerged from extreme poverty.\n    - Trade as a share of gross domestic product increased by half.\n  - Ensure the gains from trade are shared fairly rather than closing off economies."
    },
    {
      "heading": "Making Fiscal Policies People-Focused (policy priority 2)",
      "content": "- Fiscal context:\n  - Many economies face severe fiscal pressures.\n  - In developing countries, debt-servicing costs are taking up a bigger share of tax revenue while spending demands grow.\n- Fiscal strategy:\n  - Implement a gradual and people-focused fiscal effort to alleviate fiscal risks while limiting negative impacts on growth and inequality.\n  - Measures include raising revenue, improving governance, and protecting social programs.\n- Revenue potential and equity:\n  - There is much scope for developing countries to raise more revenue through tax reforms—as much as 9 percent of GDP, according to IMF research.\n  - Emphasize progressive taxation so those who can afford to pay more do so (examples: taxing capital income and property).\n- Governance and trust:\n  - Taxpayer confidence requires that taxes fund public services rather than enrich the powerful; improve transparency and reduce corruption.\n- Social spending:\n  - Protect social-spending programs (school meals, unemployment insurance, pensions).\n  - Well-targeted cash-transfer programs—such as Brazil’s Bolsa Familia—can support the vulnerable.\n  - IMF research shows that strong redistributive policies in a growing G20 economy—such as social-spending programs and public investment in education—can reduce inequality between 1.5 and 5 times more than weaker policies."
    },
    {
      "heading": "Strengthening the Global Backstop (policy priority 3)",
      "content": "- IMF actions to bolster the global financial safety net:\n  - Reviewing concessional lending instrument for low-income countries, the Poverty Reduction and Growth Trust (PRGT), to ensure it is adequately resourced and its long-term finances are sustainable given demand expected to exceed pre-pandemic levels.\n  - Reviewing the surcharge policy for the first time in nearly a decade to ensure continued provision of financing at affordable rates.\n  - Members agreed last year to increase permanent quota resources, allowing the IMF to maintain lending capacity; the IMF is counting on G20 members to ratify the increase.\n- Rationale: A strong global safety net is needed to serve the IMF’s most vulnerable members and prevent countries from falling into crises that exacerbate inequality and instability."
    },
    {
      "heading": "Concluding policy imperative",
      "content": "- One lesson of recent history: do not ignore those left behind by economic and technological progress—individuals within countries or entire nations.\n- With the right mix of policies and international cooperation, it is possible to escape a low-growth, rising-inequality trap and build a more prosperous and equitable world for all.\n\nSource: IMF blog post \"A Low-Growth World Is an Unequal, Unstable World\" by Kristalina Georgieva, July 23, 2024.\n\n---\n\n Content in this bundle\n\n- Domestic Resource Mobilization\n  - Domestic Resource Mobilization (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Domestic Resource Mobilization (PDF){rel=\"external\" type=\"application/pdf\"}\n- G-20 Note on Alternative Options for Revenue Mobilization, June 2024\n  - G-20 Note on Alternative Options for Revenue Mobilization, June 2024 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - G-20 Note on Alternative Options for Revenue Mobilization, June 2024 (PDF){rel=\"external\" type=\"application/pdf\"}\n- 072224\n  - 072224 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - 072224 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- update\n- driven\n- social\n- Bolsa\n\nSource: https://www.imf.org/en/blogs/articles/2024/07/23/a-low-growth-world-is-an-unequal-unstable-world"
    }
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    "[Markdown version](/en/blogs/articles/2024/07/23/a-low-growth-world-is-an-unequal-unstable-world/index.md)",
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    "Authors: Kristalina Georgieva",
    "Published: July 23, 2024",
    "Author: Kristalina Georgieva",
    "Date: July 23, 2024",
    "Core message: Prolonged low global growth risks entrenching poverty and widening within-country inequality, but a balanced set of policies can prevent a low-growth, rising-inequality trap.",
    "IMF World Economic Outlook update projections:",
    "Medium-term growth projections remain at their lowest in decades.",
    "Despite resilience to successive shocks (including higher interest rates), the danger is a prolonged period of anemic growth that would entrench poverty and inequality.",
    "New IMF analysis: periods of stagnation lasting four years or more tend to push up income inequality within countries by almost 20 percent—considerably higher than the increase due to outright recession.",
    "Mechanisms during stagnation:",
    "Pandemic impacts cited:",
    "Diagnosis: Most of the decline in growth in recent decades has been driven by a slump in productivity; labor and capital aren’t flowing to the most dynamic firms.",
    "Recommended measures:",
    "Fiscal context:",
    "Fiscal strategy:",
    "Revenue potential and equity:",
    "Governance and trust:",
    "Social spending:",
    "IMF actions to bolster the global financial safety net:",
    "Rationale: A strong global safety net is needed to serve the IMF’s most vulnerable members and prevent countries from falling into crises that exacerbate inequality and instability.",
    "One lesson of recent history: do not ignore those left behind by economic and technological progress—individuals within countries or entire nations.",
    "With the right mix of policies and international cooperation, it is possible to escape a low-growth, rising-inequality trap and build a more prosperous and equitable world for all.",
    "**Domestic Resource Mobilization**",
    "**G-20 Note on Alternative Options for Revenue Mobilization, June 2024**",
    "**072224**",
    "[update](https://www.imf.org/en/Publications/WEO/Issues/2024/07/16/world-economic-outlook-update-july-2024?cid=ca-com-homepage)",
    "[driven](https://www.imf.org/en/Blogs/Articles/2024/04/10/world-must-prioritize-productivity-reforms-to-revive-medium-term-growth)",
    "[social](https://www.imf.org/en/Publications/Policy-Papers/Issues/2024/04/30/Operational-Guidance-Note-for-IMF-Engagement-on-Social-Spending-Issues-548431)",
    "[Bolsa](https://www.imf.org/en/Publications/WP/Issues/2020/06/19/Social-Programs-and-Formal-Employment-Evidence-from-the-Brazilian-Bolsa-Famlia-Program-49512)"
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