The World Bank has issued a new study on global productivity which indicates that the COVID-19 pandemic has compounded a broad-based slowdown in growth that has been underway over the past decade.
According to the report, which was published in the form of a book this week, labour productivity in the average emerging market and developing economy (EMDE) which was already less than one-fifth of the advanced-economy average in 2013-18, continues its downward trend due to weaker investment and efficiency gains.
The trend is also reflective of slowing improvements in key drivers of productivity; and adverse shocks such as natural disasters, epidemics, wars, and financial crises.
The study says COVID-19 may slow productivity growth further through multiple channels, including lower investment, erosion of human capital because of unemployment and loss of schooling, and a retreat from global trade and supply chains.
“COVID-19 could encourage the adoption of new technologies and accelerate the automation of production.”– World Bank
In order to rekindle productivity growth, the World Bank suggests a comprehensive including “policies to facilitate investment in physical and human capital; encourage reallocation of resources toward more productive sectors and enterprises; foster firm capabilities to reinvigorate technology adoption and innovation; and promote an inclusive, sustainable, and growth-friendly macroeconomic and institutional environment.”
The study outlines that global labour productivity growth slowed from a peak of 2.7 per cent in 2007, just before the global financial crisis, to a post-crisis trough of 1.5 per cent in 2016, and it remained below two per cent a year in 2017-18.
The post-crisis slowdown was widespread, affecting around 70 per cent of advanced economies and EMDEs, home to over 80 per cent of the global extreme poor.
The World Bank notes that the “productivity growth deceleration in EMDEs was the steepest, longest, and most synchronised since 1970, reflecting investment weakness and smaller efficiency gains, in approximately equal measures.”
Key correlates of productivity growth have slowed or gone into reverse. Working-age population growth has decelerated, educational attainment has stagnated, and the pace of expansion into more diverse and complex forms of production has lost momentum as the growth of global value chains stalled, the World Bank outlines.
The book says the COVID-19 pandemic has plunged the global economy into its deepest recession since the Second World War
Uncertainty about the depth and duration of the pandemic has weakened domestic and foreign direct investment, and trade.
The World Bank projects, “steep income losses and disruptions to education may cause an erosion of human capital and shifts in the labour markets. Mobility restrictions may slow the reallocation of workers away from low-productivity firms to higher-productivity ones.
It said governments and private sectors entered the pandemic with elevated debt levels, adding “COVID-19-induced recessions may further strain corporate and public sector balance sheets leading to weaker investment and deeper employment losses.”
Still the Bank is noting that the pandemic may also create productivity-enhancing opportunities for those countries that employ complementary policies to seize them.
“COVID-19 could encourage the adoption of new technologies and accelerate the automation of production. It could lead to a restructuring of supply chains, and improve education and financial development in countries with reliable and wide-spread internet access,” the World Bank says.
However, it’s noted that these productivity gains may be unevenly distributed, causing employment losses in some sectors.