BAKU, Azerbaijan, March 28. The GDP growth in Europe and Central Asia (ECA) is expected to slow down do 3 percent until 2030 from 3.6 percent in 2022-2021, Trend reports via the latest overview from the World Bank (WB).
"Investment has weakened against the backdrop of sustained geopolitical tensions and pronounced uncertainty, as has the growth of the labor force. The dual shocks of the COVID-19 pandemic and the war in Ukraine are expected to inflict substantial damage to the drivers of potential growth and exacerbate existing structural challenges," the report said.
According to the bank, as a result, potential per capita growth is forecast to decline slightly to 2.8 percent per year from 2022 through 2030 (2.9 percent per year in 2011-2021).
At the same time, the average contribution of labor-force growth to potential growth in ECA in the baseline scenario is expected to drop from 0.3 percentage point per year over 2011-2021 to less than 0.1 percentage point per year over 2022-2030.
"For 9 of the 13 countries with available data, labor-force growth is expected to be a drag on potential growth. Even in the countries where this is not the case - Türkiye and the countries of Central Asia - the contribution in 2022-30 is expected to be weaker than in 2011-21," the report added.
Meanwhile, the potential GDP growth may recover from the baseline rate of 3 percent per year to 3.8 percent per year in 2022-2030, which is faster than the 3.5 percent annual pace of 2011-2021.
"Higher investment is expected to contribute three-quarters of the 0.8 percentage-point boost to annual potential growth. Social benefit reforms (assumed to raise labor force participation) account for another quarter. The remainder results from labor market reforms (also assumed to raise labor force participation) and education and health improvements. In a separate scenario in which investment is increased to tackle climate change, potential growth over 2022-2030 would rise by 0.4 percentage point a year over the baseline, to 3.4 percent—only slightly lower than the average pace of 2011-2021," the report added.
"Given the limited fiscal space in the region, structural reforms are needed to help boost jobs and incomes, strengthen resilience to shocks, and promote sustainable growth over the next decade," the WB concluded.