Aging populations and low productivity will combine to reduce output growth, the International Monetary Fund said in a study released on Tuesday.
Lower potential growth in advanced economies has been driven in roughly equal measure by slower capital accumulation and labor growth—due primarily to adverse demographics. In emerging market economies much of the decline is attributable to slower productivity growth.
Global output growth fell sharply during the global financial crisis and a considerable portion of this slowdown is due to economies facing lower “speed limits,” the study said.
“An economy’s speed limit dictates how rapidly it can expand its production of goods and services without increasing inflation,” the study said.
“The evidence presented in the study suggests that absent policy action to encourage innovation, promote investment in productive capital, and counteract the negative impetus from aging, countries will have to adjust to a new reality of lower speed limits,” the study explained.
“However, there is a need for action. To raise economic speed limits, policies need to encourage innovation, promote investment in productive capital, and counteract the negative impetus from aging,” the IMF added. (Anadolu Ajansi)