Prof. Steven Barnett
Global growth is stuck in low gear. Just as a car stuck in low gear can only reach a fraction of its potential speed, the global economy is failing to find its former momentum. The engine is running, but the structural transmission of growth—productivity—is failing to shift upward.
Evidence of the Slowdown
The clearest way to see this is by comparing recent trends with the pre-pandemic era. For the two decades before 2020, the global economy grew at an average annual rate of 3.7 percent. In contrast, for the past two years, growth has hovered at approximately 3.3 percent—a full half-percentage point below the historical norm.
This performance is even more concerning when we consider the massive “scars” left by the pandemic. By 2024, the global economy was 3 percent smaller than it would have been without the shock of COVID-19. This 3 percent gap represents approximately $3.3 trillion in lost output for 2024 alone–a sum larger than the annual GDP of most major nations.
Normally, the years following a major shock see a “catch-up” period of faster-than-average growth as the economy recovers lost ground. This has not happened. Instead of closing the gap, the world is falling further behind. While advanced economies have shown some resilience—the US, in particular, has outperformed forecasts—the scarring is especially large in Emerging Market and Developing Economies. Those least able to afford it have been the hardest hit, lacking the policy space and fiscal buffers to cushion the blow.
The Medium-Term Outlook
The forecast offers little relief. For the 2024-2030 period, the International Monetary Fund (IMF) projects global growth to average just 3.2 percent. This data, a combination of the latest near-term (International Monetary Fund. Research Dept. (2026)) and medium-term forecasts (International Monetary Fund. Research Dept. (2025)), is the lowest on record. Not only is it slower than pre-pandemic, but it is stuck at the lowest pace since the IMF started publishing medium-term forecasts in the 1990s. The “low gear” isn’t a temporary stall; it appears to be the new cruising speed.
Why Is It Stuck? The Role of Productivity
Economic growth theory provides a direct explanation for this slowdown: declining growth in total factor productivity (TFP). If we think of the global economy as a factory, output can grow by adding more machines (capital), more workers (labor), or by using those inputs better (productivity).
Even before the pandemic, economists were sounding the alarm. In “Gone with the Headwinds” (Adler et al. (2017)), researchers emphasized that structural headwinds were already dragging down global productivity and highlighted, foreshadowing what comes below, the importance of trade. Productivity gains come from two sources: innovation and the better allocation of resources. While innovation (like AI) is more intuitive, the role of resource allocation is often under-appreciated.
The allocation argument is straightforward: if resources flow from low-productivity activities to high-productivity ones, output increases even without a technological breakthrough. A textbook example is China in the 2000s. China’s rapid GDP growth was fueled by the flow of labor out of low-productivity farming into much higher-productivity manufacturing. The same worker produced much more in a factory than on a farm, and as a result, national productivity took off.
The IMF’s research on the “Slowdown in Global Medium-Term Growth” (International Monetary Fund. Research Department (2024)) highlights the importance of of this allocation of resources argument. It finds that structural reforms to better allocate resources are among the most effective ways to boost medium-term growth.
The Trade Headwind
This brings us to a current problem. Historically, trade was a catalyst for productivity. Trade allows countries to specialize in what they do best and, thus, directly promotes a better allocation of resources. Trade also exposes domestic industries to foreign competition, sparking innovation that boosts productivity. Thus, it provides the pressure and the opportunity to move resources to their most productive uses.
Today, that engine is being throttled. Trade restrictions–tariffs, export bans, and “buy local” requirements–are rising sharply. Consequently, trade as a share of global GDP has flatlined. In advanced economies, the growth rate of trade has fallen by nearly half since the 2008 financial crisis.
When trade retreats, so does the efficiency of resource allocation. Fixing this will be difficult. To varying extents, trade restrictions are motivated not by economic efficiency but by national security concerns. Lost efficiency, for example by replicating global supply chains onshore, is a “resilience tax” in the form of slower growth that some countries are choosing to pay.
Conclusion
The global economy is stuck in low gear. Growth has been disappointing and is forecast to continue to disappoint through the medium term. Moreover, this sluggishness is on top of a world still bearing large economic scars from the pandemic. The solution ultimately rests with boosting productivity—through innovation and, under-appreciated, through better allocation of resources. Rising trade barriers, unfortunately, add a big headwind to boosting productivity. Thus, without a reinvigoration of trade, the global economy is likely to remain stuck in low gear.
References
Adler, Gustavo, Romain A Duval, Davide Furceri, Ksenia Koloskova, and Marcos Poplawski Ribeiro. 2017. “Gone with the Headwinds: Global Productivity.” Staff Discussion Notes (USA) 2017 (004): A001. https://doi.org/10.5089/9781475589672.006.A001.
International Monetary Fund. Research Department. 2024. “Chapter 3 Slowdown in Global Medium-Term Growth.” In World Economic Outlook, April 2024, CH003. USA: International Monetary Fund. https://doi.org/10.5089/9798400255892.081.CH003.
International Monetary Fund. Research Dept. 2025. World Economic Outlook, October 2025: Global Economy in Flux, Prospects Remain Dim. USA: International Monetary Fund. https://doi.org/10.5089/9798229023948.081.
———. 2026. World Economic Update, January 2026: Global Economy: Steady Amid Divergent Forces. USA: International Monetary Fund. https://doi.org/10.5089/9798229032339.081.