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In a grim report issued last week, the World Bank warned of a slow-growth crisis in the global economy that could persist over the coming decade unless governments worldwide adopt what it calls “sustainable, growth-oriented policies.”

The World Bank report says that global growth in gross domestic product between 2022 and 2030 is on track to decline to about 2.2%, down one-third from the rate that applied between 2000 and 2010. Although the growth rate in developing economies will be higher, it will also likely decline by one-third, from 6% to 4%, according to the document titled “Failing Long-Term Growth Prospects.”

The report says that a number of factors are depressing long-term growth prospects, including an aging workforce, slower population growth and lower rates of productivity-enhancing investment. The negative effects are exacerbated by global shocks to the economy, including the lingering effects of the COVID-19 pandemic and the ongoing war in Ukraine.

“A lost decade could be in the making for the global economy,” said Indermit Gill, the World Bank’s chief economist, in a release accompanying the report. “The ongoing decline in potential growth has serious implications for the world’s ability to tackle the expanding array of challenges unique to our times — stubborn poverty, diverging incomes, and climate change. But this decline is reversible. The global economy’s speed limit can be raised — through policies that incentivize work, increase productivity, and accelerate investment.”

Growth strategies

The World Bank report includes specific recommendations that, according to its own estimates, would boost the average predicted global economic growth rate to 2.9% from 2.2% through the remainder of the decade.

The report urges governments worldwide to lower inflation and assure stability in the financial sector. The report also recommends reducing sovereign debt levels, which would free up funds for investment in productivity-enhancing infrastructure.

Recommended infrastructure investments include upgraded transportations systems and environmentally sustainable improvements to agriculture, manufacturing, and land and water management systems.

The report also calls on countries to lower barriers to international trade, focus on ways to globalize service economy growth and increase labor force participation.

Social progress slowed

Macroeconomists generally agree with much of the World Bank’s assessment, saying that concerns about global growth have been on the rise for several years, and warn that the consequences of a sustained decline — especially in emerging economies — might be severe.

Liliana Rojas-Suarez, a senior fellow at the Center for Global Development and director of its Latin American Initiative, told VOA that growth began to slow several years ago in Latin America.

“A period of high growth in Latin America occurred in 2000 to 2014,” she said. “That was a period when commodity prices were very high and the region was really growing. But the important thing is that social indicators improved dramatically. Poverty declined, income inequality improved, food security, educational health — name any indicators, they were all improving.”

Since then, she said, much of that progress has reversed.

“Growth is not the only thing,” she said. “You need many more things to actually improve poverty and inequality, but growth is an important component. After [2014], it stopped, and now the social indicators are reverting.”

Impacts unevenly distributed

In a news briefing last week, Adam Posen, president of the Peterson Institute for International Economics, said the World Bank was correct to warn of a difficult period ahead but that the effects were not likely to be evenly distributed.

“If you look at the last couple years, not only was there surprising resilience in Europe, but a big surprise — a positive surprise — has been the sustained growth in India, Brazil, Mexico, Indonesia, as well as China, once you take out COVID. Indonesia plus India plus Brazil plus Mexico is an awful lot of human beings and an awful lot of global GDP.”

He said that all of those economies had weathered a year of Federal Reserve interest rate hikes without apparent damage to their own domestic currencies, and that most appear well-positioned to continue growing. However, he noted, the same thing cannot be said about many other regions of the globe.

“The World Bank, I think, is right to draw concern to the possibility of a lost decade in sub-Saharan Africa and Central America and South Asia,” Posen said. “An awful lot of human beings are at risk or are facing very grim situations. But from a global GDP outlook, or even a global population outlook, most of the major [emerging markets] along with most of the G20, essentially, are doing pretty well. I think it should be a concern for the poor people of the world but not for the world in general.”

New database

As part of the report, the World Bank announced that it is now using a new public database to assess global GDP growth, with data currently extending from 1981 to 2021. The database, according to the World Bank, is the first to track the way in which temporary economic disruptions, including “recessions and systemic banking crises,” affect economic growth over time.

The latter has particular relevance today, given the recent failures of several U.S. banks and the forced takeover of Swiss financial services giant Credit Suisse by UBS.

“Recessions tend to lower potential growth,” Franziska Ohnsorge, a lead author of the report and manager of the World Bank’s Prospects Group, said in a statement. “Systemic banking crises do greater immediate harm than recessions, but their impact tends to ease over time.”

Rojas-Suarez of the Center for Global Development praised the creation of the new database, saying that it “could be very useful, not only for future research but also for monitoring countries moving forward, and for international comparisons.”
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McDonald’s announced Monday plans to lay off a number of corporate employees and closed U.S. offices through Wednesday as the company prepares to deliver the notifications as part of a larger restructuring plan.

The international fast-food company closed its U.S. offices and some international ones “out of respect,” and to “provide dignity, confidentiality, and comfort to our colleagues,” said an anonymous Reuters source who is familiar with the company and was not authorized to speak to the media.

According to the source, McDonald’s will have more employees beginning new roles or receiving promotions this week than being laid off. The company has more than 150,000 employees globally, with about 70% based outside of the United States.

The layoffs do not include the more than 2 million workers in franchised McDonald’s restaurants around the world.

Several tech-industry companies, including Amazon, Meta, Twitter and Microsoft have announced layoffs in recent months too. McDonald’s competitor Wendy’s also announced restructuring and possible corporate layoffs in January.

At the start of 2023, McDonald’s warned employees that layoffs were coming as it reorganized the company to increase efficiency and set April 3 as the date by which they would share more details with employees. 

“We have a clear opportunity ahead of us to get faster and more effective at solving problems for our customers and people, and to globally scale our successful market innovations at speed,” the company said in a memo to workers, reported by The Associated Press.

The Wall Street Journal reported that McDonald’s declined to comment on how many employees would be affected by the layoffs, but the Reuters source said the number will tally in the hundreds.

Some information from this report came from Reuters and The Associated Press. 
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Major oil-producing countries led by Saudi Arabia said they’re cutting supplies of crude — again. This time, the decision was a surprise and is underlining worries about where the global economy might be headed.

Russia is joining in by extending its own cuts for the rest of the year. In theory, less oil flowing to refineries should mean higher gasoline prices for drivers and could boost the inflation hitting the U.S. and Europe. And that may also help Russia weather Western sanctions over its invasion of Ukraine at the expense of the U.S.

The decision by oil producers, many of them in the OPEC oil cartel, to cut production by more than 1 million barrels a day comes after prices for international benchmark crude slumped amid a slowing global economy that needs less fuel for travel and industry.

It adds to a cut of 2 million barrels per day announced in October. Between the two cuts, that’s about 3% of the world’s oil suppl

Here are key things to know about the cutbacks:

Why are oil producers cutting back?

Saudi Arabia, OPEC’s dominant member, said Sunday that the move is “precautionary” to avoid a deeper slide in oil prices.

Saudi Energy Minister Abdulaziz bin Salman has consistently taken a cautious approach to future demand and favored being proactive in adjusting supply ahead of a possible downturn in oil needs.

That stance seemed to be borne out as oil prices fell from highs of over $120 per barrel last summer to $73 last month. Prices jumped after Sunday’s announcement, with international benchmark Brent crude trading at about $85 on Monday, up 6%.

With fears of a U.S. recession exacerbated by bank collapses, a lack of European economic growth and China’s rebound from COVID-19 taking longer than many expected, oil producers are wary of a sudden collapse in prices like during the pandemic and the global financial crisis in 2008-2009.

Capital markets analyst Mohammed Ali Yasin said most people had been waiting for the June 4 meeting of the OPEC+ alliance of OPEC members and allied producers, most prominently Russia. The decision underlined the urgency felt by producers.

“It was a surprise to all, I think, watchers and the market followers,” he said. “The swiftness of the move, the timing of the move and the size of the move were all significant.”

The aim now is to ward off “a continuous slide of the oil price” to levels below $70 per barrel, which would be “very negative” for producer economies, Yasin said.

Part of the October cut of 2 million barrels per day was on paper only as some OPEC+ countries aren’t able to produce their share. The new cut of 1.15 million barrels per day is distributed among countries that are hitting their quotas — so it amounts to roughly the same size cut as in October.

Governments announced the decision outside the usual OPEC+ framework. The Saudis are taking the lead with 500,000 barrels per day, with the United Arab Emirates, Kuwait, Iraq, Oman, Algeria and Kazakhstan contributing smaller cuts.

Will the production cut make inflation worse?

It certainly could. Analysts say supply and demand are relatively well balanced, which means production cuts could push prices higher in coming months.

The refineries that turn crude into gasoline, diesel and jet fuel are getting ready for their summer production surge to meet the annual increase in travel demand.

In the U.S., gasoline prices are highly dependent on crude, which makes up about half of the price per gallon. Lower oil prices have meant U.S. drivers have seen the average price fall from records of over $5 per gallon in mid-2022 to $3.50 per gallon this week, according to motor club AAA.

The cuts, if fully implemented, “would further tighten an already fundamentally tight oil market,” Jorge Leon, senior vice president at Rystad Energy, said in a research note. The cut could boost oil prices by around $10 per barrel and push international Brent to around $110 per barrel by this summer.

Those higher prices could fuel global inflation in a cycle that forces central banks to keep raising interest rates, which crimp economic growth, he said.

Given the fears about the overall economy, “the market may interpret the cuts as a vote of no confidence in the recovery of oil demand and could even carry a downside price risk — but that will only be for the very short term,” Leon said.

What will this mean for Russia?

Moscow says it will extend a cut of 500,000 barrels per day through the rest of the year. It needs oil revenue to support its economy and state budget hit by wide-ranging sanctions from the U.S., European Union and other allies of Ukraine.

Analysts think, however, that Russia’s cut may simply be putting the best face on reduced demand for its oil. The West shunned Russian barrels even before sanctions were imposed, with Moscow managing to reroute much of its oil to India, China and Turkey.

But the Group of Seven major democracies imposed a price cap of $60 per barrel on Russian shipments, enforced by bans on Western companies that dominate shipping or insurance. Russia is selling oil at a discount, with revenue sagging at the start of this year.

What does the White House say?

White House National Security Council spokesperson Adrienne Watson, said, “We don’t think cuts are advisable at this moment given market uncertainty — and we’ve made that clear.”

She noted, “Prices have come down significantly since last year, more than $1.50 per gallon from their peak last summer” and, “We will continue to work with all producers and consumers to ensure energy markets support economic growth and lower prices for American consumers.”

The initial White House response was milder than in October, when cuts came on the eve of U.S. midterm elections where soaring gas prices were a major issue. President Joe Biden vowed at the time that there would be “consequences,” and Democratic lawmakers called for freezing cooperation with the Saudis.

Caroline Bain, chief commodities economist at Capital Economics, said the cutback shows “the group’s support for Russia and flies in the face of the Biden administration’s efforts to lower oil prices.”
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