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Both the OECD and World Bank expect global GDP growth to fall below 3 per cent his year.Todd Korol/Reuters

John Rapley is a contributing columnist for The Globe and Mail. He is an author and academic whose books include Why Empires Fall and Twilight of the Money Gods.

The backdrop to Sunday’s G7 meeting in Alberta is one of deepening gloom.

Even before U.S. President Donald Trump scrambled the economy with his capricious and sometimes bizarre policy announcements, Western economies had been slowing – Britain’s contracting slightly in April, U.S. employment slowing, Canada skirting with recession. Now, amid the further deadweight of tariffs, the confidence-sapping volatility of Washington’s policy-making and a sudden ramp-up in military spending that will eat into other spending and investment, growth rates across the G7 are sliding towards zero.

In the last couple of weeks, both the OECD and World Bank released the latest updates of their economic forecasts, and both reached similar conclusions: the growth rate of the world economy continues decelerating. Both agencies now expect global GDP growth to fall below 3 per cent his year.

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This fading momentum is not new. Signs of a decades-long trend can be found as early as the late 1960s, when the surging postwar growth began to fade. In that decade, the annual growth rate of per capita GDP had averaged over 3 per cent. It’s never come near that rate since. Moreover, the character of global growth changed during this time.

In the latter half of the 20th century, surging Western economies lifted global output. Since the turn of the millennium, the centre of dynamism has shifted east and south, to China and the developing world. That trend continues today. It’s telling that notable invitees to this year’s summit include the leaders of India and Saudi Arabia, newer engines of growth.

The OECD and World Bank concur that today’s slowdown is driven mostly by the developed economies, with the developing world proving more resilient in its recovery from the pandemic recession. Whereas India’s annual economic growth rate is expected to remain above 6 per cent over the next three years, with Indonesia and China following at around 5 per cent, growth in most Western economies will hover closer to the 1-per-cent mark. In some countries, including Japan and Italy, economies will barely move at all.

Once you factor in population growth, real incomes are pretty much standing still, even going backward in some places. Some of these results from what I’ve called the imperial lifecycle – that the core of the world economy gradually shifts outward as it expands. Some of it is owing to demography: the world is aging, with Western countries in the lead, and that reduces the labour force while also altering investment and spending patterns in ways that can slow growth.

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But at the root of the problem lies the poor productivity growth of developed economies over the past few decades. That helps explain the importance Prime Minister Carney has given the topic at the summit, making “using artificial intelligence and quantum to unleash economic growth” one of his three principal agenda items.

A lot of hope has come to be vested in AI as the saviour which will rejuvenate the world economy. It’s still too early to say what the productivity impacts of AI are going to be, but we’ve been hearing for a long time that a new technology – the computer, the Internet – will revolutionize the economy. But as far back as 1987, the Nobel economics laureate Robert Solow said the “you can see the computer age everywhere but in the productivity statistics.”

To date, other than brief blips such as the U.S.’s short productivity bounce in the late 1990s, we’ve yet to see much evidence of a society-wide transformation of output. Some doubt we ever will. Northwestern University’s Robert Gordon, one of the U.S.’s leading experts on productivity, maintains that the transformative technologies of the past, such as the steam engine and electricity, may never again find parallels. Others point to the so-called Baumol-Bowen cost disease to highlight the paradox that, even when a technology does revolutionize production, it may not lift overall output by all that much.

The Baumol-Bowen thesis is that when a technology raises wages in a high-productivity sector affected by it, those richer workers boost demand for services coming from low-productivity sectors. For example, it looks increasingly likely that AI could have profoundly positive impacts on productivity in the health-care sector. But to the extent that raises returns in that sector, its employees will have more to spend on services whose labour productivity is by definition stagnant: AI chatbots won’t do much to change the way we get haircuts or buy coffee.

One possibility that Western leaders and their voters therefore need to face is that high growth may never come. We may continue to bump along. That changes the policy debate away from how we raise society’s output to how we allocate it – an output that is after all so huge by historical standards that it opens immense possibilities of human well-being, but whose distribution still favours some over others.

That’s an entirely new discussion, one about distribution and not growth. But it’s high time it started.

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