The World Economic Forum warns the prospects for a sustained economic recovery remain at risk

The World Economic Forum warns the prospects for a sustained economic recovery remain at risk

With the tenth anniversary of the global financial crisis approaching, the prospects for a sustained economic recovery remain at risk thanks to political uncertainty and major technological disruption that calls into question the future of economic development models based on exporting labour-intensive manufacturing products, according to a new report.

World GDP growth accelerated to 3.5% in 2017, the World Economic Forum's 'Global Competitiveness Report 2017-2018' points out. Yet despite the positive development, growth rates remain below historic levels and productivity improvements remain sluggish, putting many prevalent models of economic growth and related policies into question.

"Major technological disruption and the new fault lines emerging in the global economic and political order add further uncertainty about the types of policies that will make economies future-proof," the report explains. "Taken together, all of these factors are challenging decision makers to find new approaches and policies to advance economic progress."

Delivering growth is being complicated by various tensions and transformations that characterise the contemporary world. The report points to four that are likely to shape economic discourse in the year ahead:

Structural headwinds and measurement challenges

  • Advanced and emerging markets alike appear to have also experienced a slowdown in productivity, despite significant technological progress.
  • Some argue that today's technologies do not have the same productivity-enhancing potential as inventions of the past, or they could take more time to impact productivity and show up in statistics.
  • An additional explanation behind the productivity slowdown is that the traditional GDP measurement fails to account for much of the value created in recent years. Putting growth back on a sustainable path will require reforms to build up human and physical capital and leverage new technologies.

Innovation challenges

  • The pace and disruptiveness of technological change are creating unprecedented opportunities and challenges that are set to be amplified by the convergence of digital, physical, and biological technologies that are characterising the emerging Fourth Industrial Revolution. They have immense potential to be a source of growth, but their future evolution is uncertain.
  • Job losses are expected as technology transforms manufacturing and services in the coming years, raising questions about how quickly new jobs will be created and about the future of economic development models based on exporting labour-intensive manufacturing products. At the same time, technological advances are creating significant value for consumers, more than is currently reflected in national statistics.

Disruptive inequalities

  • There are already clear signs that technology is contributing to labour market polarisation, with a drop in the number of middle-skilled jobs and growth in both low- and high-skilled jobs.
  • In many countries, distributional considerations have emerged as one of the most pressing challenges for policymaking on competitiveness and growth.

Trade pressures

  • Trade and investment flows have been important drivers of economic growth in the past, but the relationship between globalisation and growth remains imperfectly understood.
  • Policies that revive growth will require a better understanding of the interactions between trade liberalisation, factor liberalisation, technological change, and domestic policy frameworks across dimensions of economic progress such as employment, income, inequality, health, and education. This is important because growth in international trade has not recovered to pre-crisis levels—after falling close to 15 percent in 2009 it is currently growing more slowly than global GDP.

"Rising to the challenge of sustainable and equitable economic progress will require ingenuity and application from diverse stakeholders across the world, as well as a truly collaborative approach," the report concludes. 

Global manufacturing

A similar sentiment was echoed earlier this week by the World Trade Organization (WTO) in its '2017 World Trade Report,' which stressed the increasingly disruptive impact technological progress is likely to have on manufacturing globally, rendering some skills obsolete.

"Technological progress expands economic output and increases welfare by improving productivity – allowing more output to be produced with the same resources – and by enabling further innovation and development," the report states. "Current technological progress has led to a higher relative demand for skilled workers and a lower relative demand for workers performing routine activities. Like technological change, trade impacts productivity and welfare. Opening up to trade helps to allocate resources to the most productive activities and increases a country's welfare, but the resulting gains in efficiency also require workers to adjust."

The report finds that while trade and technology are vital sources of economic growth,  the latter is also largely responsible for the decreasing share of manufacturing jobs and the declining number of middle-skill jobs in developed economies.

"Looking ahead, the prospects for increased automation suggest that technology may have an even greater impact on the future of jobs," the report explains. "While drawing firm conclusions about what this could mean for the labour markets is problematic, we can be sure that technological progress is likely to have an increasingly disruptive impact, rendering some skills obsolete but enhancing others and leading to the development of new skills and new jobs."

In an opening address at the launch of the report, WTO director-general Roberto Azevedo pointed out that trade and technology are "two of the most powerful drivers of economic progress."

Yet he underlined that while most individuals are benefiting considerably from trade and technology, others can lose out. "We need to ensure that the benefits of economic progress reach everybody."