IMF warns of threat to global stability from productivity slowdown

By on 05/04/2017 | Updated on 24/09/2020
ChristineLagarde, managing director, International Monetary Fund

Policy makers worldwide must take urgent action to reverse a slowdown in global productivity growth that could undermine living standards and threaten social stability, the head of the International Monetary Fund (IMF) has warned.

In a speech to the American Enterprise Institute in Washington yesterday, Christine Lagarde said investment in education, incentives to boost research and development (R&D) and measures to cut red tape were needed to boost productivity growth, which has remained sluggish since the 2008 financial crisis.

Lagarde said over the past decade there had been “sharp slowdowns” in output per worker and ‘total factor productivity’ – a measure of innovation – with productivity growth dropping to 0.3% from a pre-crisis level of 1%.

She said the IMF had calculated that overall GDP in advanced economies would be about 5% higher today if growth had followed its pre-crisis trend. “That would be the equivalent of adding another Japan – and more – to the global economy,” she said.

Another decade of weak productivity growth would “seriously undermine the rise in global living standards”, Lagarde warned. “Slower growth could also jeopardise the financial and social stability of some countries by making it more difficult to reduce excessive inequality and sustain private debt and public obligations,” she added.

Lagarde said all governments around the world needed to do more to “unleash entrepreneurial energy” to reverse recent productivity trends.

“They can achieve this by removing unnecessary barriers to competition, cutting red tape, investing more in education and providing tax incentives for research and development,” Lagarde said.

“High-quality public investments in education and training, R&D, and infrastructure, including in the United States, could help provide those signals, catalysing private investment while boosting productivity and economic potential. Similarly, signals about tax policy can enhance predictability for investors,” she added.

Lagarde singled out “more and better” education as an overriding priority for governments, citing IMF estimates that a slowdown in educational attainment in many economies, both advanced and emerging, had lowered labour productivity growth by 0.3 percentage points since the 1990s.

“Education and training are the key policy actions to raise both productivity growth and reduce inequality,” Lagarde concluded.

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See also:

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About Ben Willis

Ben Willis is a journalist and editor with a varied background reporting on topics including public policy, the environment, renewable energy and international development. His work has appeared in a variety of national newspapers including the Guardian, Daily Telegraph and Times, as well as numerous specialist business, policy and consumer publications.

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