When it comes to the economy, many countries have defied pessimistic predictions, but others, mainly in the Global South, are still struggling to bounce back from the upheaval caused by COVID-19, followed by supply shocks, higher costs of capital and currency volatility.
A unique set of challenges call for new solutions
In many low-income countries, poverty rates are still higher today than they were pre-pandemic. And most least-developed economies are import-dependent for both food and energy, leaving them exposed to lower supplies and higher prices. The World Food Programme estimates 333 million people are facing acute levels of food insecurity, an increase of almost 200 million people since before the pandemic.
Developing economies also have high levels of external public debt, which increased between 2010 and 2021 from 19% of their GDP to 29%. This makes them more exposed to changing global economic conditions, like rising interest rates and exchange rate fluctuations, and limits their ability to service debt. In the past three years, there have been 18 sovereign defaults, more than the total number of defaults in the previous two decades. Already, today, 3.3 billion people live in developing countries that spend more on interest payments than on education or health.
Debt distress and constrained resources also stifle much-needed investments in technology and innovation. The AI revolution, for example, offers huge opportunities when it comes to increasing the efficiency of output production and innovation. But these benefits might be harder for developing countries to capitalize on, in large part because of the current digital divide between North and South, translating to even more inequality. When it comes to the climate, countries in the Global South have already fared far worse than others, in terms of both the economic and human costs, but, if not managed correctly, the transition to a green economy could create high costs and inequalities for these same countries.
Overall, the economic outlook is more promising than it was a year ago, but as IMF experts warned at their recent Spring Meetings, we are still heading towards historically low levels of growth, which continues to threaten to undo decades of progress when it comes to reducing global inequalities and extreme poverty.
To avoid backsliding – and to create new opportunities for younger generations – we must restart the economic growth engine. There are three fundamental prerequisites to getting this right.
1. Measuring growth – in a new way
GDP growth is a useful measure, telling us a lot about the health of an economy. But it is a blunt instrument. It is not a good substitute for evaluating living standards, it does not tell us much about environmental impact, it doesn’t say how resilient an economy is to shocks, and it doesn’t tell us if the types of investments being made will generate innovation and returns in the long term. Pursuing “growth at all costs” is therefore a myopic approach. The quality of growth matters as much – if not more – than its speed.
In the past, short-term growth has often come at the expense of other, equally important goals. According to recent analysis, the world is only half way towards combining growth with other long-term priorities. As policymakers pursue new ways to start the growth engine, we need new measures that look at both speed and quality. The World Economic Forum’s Future of Growth framework is one such effort, creating a dashboard for countries to take a balanced look across both GDP measures and their performance on sustainability, innovation, resilience and inclusiveness, with growth serving as the basis of a virtuous cycle, not an end in itself.
2. Reviving North-South economic collaboration
Now more than ever is the time for global collaboration to carve out a new model of economic growth and development. And yet the opposite has been happening. Geopolitical fragmentation has been bleeding into the economic sphere, further hindering global trade and capital flows. According to some estimates, protectionist measures have increased by 38% in the past year. As belts tighten, vital aid from wealthy nations for priority areas like climate adaptation in emerging economies has fallen at a time when it’s needed most.
In times of uncertainty, it can be tempting for countries to take a ‘batten down the hatches’ approach. History has shown this is counter-productive. In the long term, win-win beats win-lose strategies. With respect to trade in goods, services, ideas, technology, and talent – the appropriate measures to support specific communities, entrepreneurs and innovators – will lead to better outcomes for advanced and developing economies alike.
As an example, the rise of always-on connectivity is creating new opportunities for more globalized talent value chains, helping higher-income countries address their skills shortages and enhancing accessibility to high-quality jobs for workers in the Global South.
3. Investing in the right foundations
In an era of technological change that is seeing a green transition, resurging industrial policies, and restructuring of supply chains, visionary policymakers everywhere can craft new opportunities for their economies. This would help their populations thrive both locally and in the global economy. For some economies it means becoming new manufacturing lighthouses or rapidly integrating AI to support public services, from heath to education and transport. For others it’s a vital moment to trade on new critical metals and minerals or build on their comparative advantage in knowledge and services industries. Yet many of the developments that will likely underpin future economic growth are something of a double-edged sword.
Artificial intelligence, for example, has the potential to contribute trillions to the global economy over the coming years. But it won’t do so without causing disruptions along the way. The same applies to the green transition across energy, infrastructure, consumer goods, and more. We expect churn across 23% of all jobs in the next five years due to these transformations. Investing in technology or in the energy transition without concurrent investment in human capital is therefore unlikely to generate sustainable returns. There are robust forecasts on the types of roles and tasks that will be most drastically affected by technological and other changes. Armed with this kind of information, leaders from business, government and beyond must start to put in place strategic workforce-planning capabilities, lifelong-learning systems, gender parity and diversity initiatives, and social safety nets, if the new drivers of growth are to work for all.
A new ‘north star’ for growth
The current economic climate demands a paradigm shift in how we think about growth.
By creating a new ‘north star’ that measures both the speed and quality of growth, and by fostering closer economic collaboration between North and South, we will see benefits for everyone. We would also see that it is possible not just to reverse the trend of steady decline in global growth since 2008, but to create a new economic model that works for all.
1,000 leaders from business, government and academia will explore pathways for growing amid complexity at the World Economic Forum’s Special Meeting on Global Collaboration, Growth and Energy for Development.
Saadia Zahidi, Managing Director, World Economic Forum
** The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the position of Astro AWANI.
