Slowing Trend Growth and Demographic Factors
The report forecasts a gradual slowdown in trend growth for the 38 OECD members and G20 countries, with a decline from pre-COVID levels of 3% to 1.7% by 2060. This is primarily due to an aging workforce and a slowdown in labor efficiency growth in emerging market countries. While the trend growth rate for OECD members is projected to decrease from 1.8% to 1.3% in 2060, G20 emerging market economies are expected to experience a more significant slowdown, from 4.5% to 2% by 2060.
By the late 2030s, India is anticipated to surpass China as a major contributor to global growth. However, despite this shift, China’s economy is projected to be the largest throughout the forecast period.
Tax Implications and Strategies
As growth decelerates, there will be increasing pressure on government finances. To maintain current debt levels, OECD countries would need to raise taxes by an average of over six percentage points by 2060. Governments that are unwilling or unable to increase taxes would have to explore alternative measures such as health and pension system reforms to alleviate the financial strain.
Impact of Energy Transition and Potential Revenues
Under a scenario where countries expedite the transition to cleaner energy to limit the global temperature increase to 1.5 degrees Celsius, the report estimates a reduction of 0.2 percentage points in global growth between 2025 and 2030. By 2045-50, this drag could increase to nearly 0.6 percentage points. Notably, the impact on OECD countries would be less severe compared to fossil fuel-dependent large emerging market economies.
Nevertheless, the report highlights the potential benefits of implementing tradable emissions permits, carbon taxes, and fuel excise taxes to raise carbon prices. This could generate additional government revenue of approximately 3.75% of economic output in OECD countries over the 2026-2030 period.