Reinvigorating Global Growth through Productivity Reforms
IMF News, March 23, 2025
Source details
- Canonical URL
- Reinvigorating Global Growth through Productivity Reforms
Other formats
Bibliographic details
- Published: March 23, 2025
Context and overarching message
- Remarks by Deputy Managing Director Nigel Clarke at the China Development Forum, Beijing, China, March 23, 2025.
- Central thesis: global growth is steady but underwhelming and reviving medium-term growth requires structural reforms to raise productivity.
- Key framing:
- Five-year ahead growth forecast remains at 3.1 percent—well below the pre-pandemic average of 3.7 percent.
- Total factor productivity has been growing at a slower pace since the 2008-09 global financial crisis.
- This is the Year of the Snake—a year of renewal and transformation; speech marks the speaker’s first visit to China since joining the IMF.
Causes of weak global growth — findings
- Declining productivity growth is identified as the primary driver of below-average global growth.
- Structural shifts noted:
- Patterns of trade and capital flows are shifting.
- AI is rapidly advancing.
- Trade is no longer the engine of global growth it used to be.
- Divergences across countries are widening.
- Role of demographics:
- In ageing societies, where the share of the working-age population is shrinking, productivity growth is crucial to maintain living standards.
- Regional contribution:
- Asia contributes over 60 percent of global growth.
Priority 1 — Innovation (findings and quantified impacts)
- Investment in research and development is a proxy for innovation effort and is central to productivity growth.
- Policy levers: technology transfer, scientific collaboration, policies that fund basic research, and closer public-private cooperation.
- Quantified IMF research finding:
- Productivity growth in advanced economies can increase by 0.2 percentage point a year with a hybrid policy that boosts public research expenditure by a third and doubles subsidies to private research.
- The increase could be even higher in emerging markets and developing countries.
- AI potential:
- IMF estimates AI could boost global GDP growth between 0.1 and 0.8 percentage points per year in the medium term, depending on adoption.
Priority 2 — Better resource allocation (findings and policy directions)
- Movement of labor and capital toward more productive firms and industries is a long-standing source of aggregate productivity growth.
- Example: workers moving from farms to factories experience large productivity and income increases with economy-wide spillovers.
- Policy tools to improve allocation:
- Increase labor mobility (e.g., re-skilling programs).
- Strengthen market forces through prices and wages to create incentives.
- Strengthen the private sector and ensure a level playing field between private firms and state-owned enterprises.
- Sectoral reallocation in Asia:
- Services sector expansion is emphasized as a new source of growth.
- The services sector has drawn about half of the region’s workers, up from just over a fifth in 1990.
- Productivity comparisons: Asia’s labor productivity in financial services is four times higher than in manufacturing, and it’s twice as high in business services.
China-specific analysis and projections
- Reallocating resources to services in China could:
- Create jobs, increase incomes, and help boost consumption.
- Support a policy priority of increasing household consumption’s share of GDP.
- Household consumption:
- While household consumption as a share of GDP in China has risen, it is still among the lowest compared to OECD countries.
- Rebalancing demand requires reforms to reduce the need for precautionary savings, especially by middle- and lower-income households.
- IMF analysis projection for China:
- A comprehensive package of reforms to boost consumption and lift productivity could raise China’s potential growth by about 1 percentage point per year over the medium term.
- That translates into a level of GDP that is close to 20 percent higher than the IMF baseline by 2040.
IMF role and institutional response
- The IMF supports countries through policy advice, lending, and capacity development to establish macroeconomic and financial stability as a foundation for growth.
- New initiative:
- Formation of a new IMF Advisory Council on Entrepreneurship and Growth to gather ideas on:
- Easing regulatory barriers.
- Adapting tax systems to a more business-friendly environment.
- Incentivizing long-term savings to increase resources for innovation.
Policy recommendations (explicit and implied)
- Pursue structural reforms to raise productivity across all countries, with attention to:
- Boosting innovation via increased public research expenditure and private research subsidies.
- Facilitating technology transfer and scientific collaboration.
- Promoting public-private cooperation in research.
- Implementing policies that improve labor mobility and re-skilling.
- Strengthening market forces (prices and wages) to enhance resource allocation.
- Strengthening the private sector and ensuring a level playing field with state-owned enterprises.
- Expanding the services sector, especially where services exhibit higher labor productivity.
- Reducing precautionary savings needs through reforms targeted at middle- and lower-income households to support rebalancing toward consumption.
Italic: Reinvigorating Global Growth through Productivity Reforms — Remarks by Deputy Managing Director Nigel Clarke at the China Development Forum, Beijing, China, March 23, 2025.