Economic stagnation exists when the total output (or output per capita) in goods and services is constant, falls slightly, or rises only sluggishly. It also exists when unemployment is chronic and increasing. Such conditions may exist in particular industries, in wider sectors of an economy, or in the economy as a whole. It may persist because the economy is dominated by unchanging traditional patterns in which there is no incentive for change. Alternatively, the economy may be held in a state of static equilibrium at low levels of income.
In the 1950s and 1960s, the global economy grew by about 5% a year, sending living standards soaring in many parts of the world. In the 1970s, growth fell to slightly above 3%, and in the 1980s it has slipped to about 2.3%. Coupled with rising population, this means that the world economy, while growing, is very fragile indeed. A key factor in stagnant economies is the lack of incentives to invest accumulated capital. Since venture capital has become internationally mobile it may have nowhere to go in the cases of regional, hemispheric, or industrialized-nation stagnation. In times of stagnation, therefore, governments may feel that only their intervention in supplying money can stimulate growth. This can be successful in the short run but can exacerbate national debts and ultimately lead to higher taxes and interest rates. Elected officials who feel their tenure depends on their solving stagnation may turn to military spending or trade protectionism or both. Thus times of little or no economic growth may be periods of high international tension.
Economic, social and environmental catastrophes can only be averted in many countries of the developing world, if global economic growth is revitalized. This means more rapid economic growth in both industrial and developing countries, freer market access for the products of developing countries, lower interest rates, greater technology transfer and significantly larger capital flows (both concessional and commercial).
A more rapid growth in the world economy would apply environmental pressures that are no more sustainable than the pressures presented by growing poverty. The resulting increased demand for energy and other non-renewable raw materials could significantly raise the cost of these items relative to other goods.