Why Economic Growth Has Slowed—And Why That’s Not Always a Bad Thing

Have you ever seen headlines like these:

“The Unthinkable: Negative GDP growth and the Threat of Depression” Here's another: “GDP data leaves experts worried” Or how about this one: “Is this the end of Growth? GDP shockwaves Send Markets Reeling”

These are all recent headlines screaming about GDP growth (or the lack thereof) and instilling the sense of how important GDP growth is for the health of our economy. But have we become reflexively inclined to believe that GDP is the holy grail of a country’s vitality? Let’s take a look at the issue.

GDP is defined by the aggregate value of final goods and services produced within a country’s border in a year. Economic growth has usually been seen as the benchmark of national economic health. Nations strive for ever higher GDP growth, businesses expand, and policymakers implement strategies to maintain upward momentum. However, since the beginning of the 21st century, growth in many advanced economies has slowed. This has scared governments and policymakers—people fear stagnation, job losses, and declining opportunities. But what if slower growth isn’t as bad as it seems? Let’s look at the idea that lower growth can actually signal economic well-being, sustainability, and stability.

Understanding the Slowdown

First, let’s examine why economic growth has slowed. Several key factors contribute to this trend, particularly in developed economies. One of the biggest drivers is demographic change—many advanced economies are experiencing aging populations and declining birth rates. These realities lead to slowing population growth and labor force expansion which impacts overall economic growth. 

Another major factor is the shift in Western economies from industrial to knowledge-based economies. Traditionally, growth was fueled by manufacturing and industrial expansion, which created millions of jobs and increased output. However, as economies mature, services and technology industries dominate as they become increasingly sophisticated. These sectors can now focus on efficiency and innovation rather than sheer expansion. A study by McKinsey & Company (2022) found that automation and digital transformation have improved productivity which reduces the need for ever more workers. As productivity fuels gains, it puts more emphasis on doing more with less, slowing growth.

Why Slower Growth Can Be a Good Thing

In the 20th century, GDP showed a clear correlation with improving people's lives. As GDP rose, living standards rose and the ability to find employment and improve one’s situation went hand in hand. This fact still seems to be true in less developed economies where people are still trying to create lives where they have more of the basic necessities. However, by the 21st century, GDP growth has slowed and income and asset gains have flowed more inequitably than before leading to smaller gains for middle and lower class citizens. 

Rather than looking at GDP, maybe we should be looking at overall happiness. By this measure, some of the countries that generally show slower growth are actually happier. Countries like Denmark and Switzerland have relatively low GDP growth rates compared to emerging economies, yet they consistently rank among the happiest countries in the world (World Happiness Report, 2023). Focusing on improving quality of life through better healthcare, better social services and more leisure time can be a drag on GDP output but actually lead to happier citizens.

The economic systems of most countries demand that we push for maximum growth. Kate Raworth, an Oxford economist points out that “ we are structurally addicted to growth, that we believe that a country must keep growing forever, no matter how rich it already is”. Continued growth is the driver for our corporate financial system. CEOs may say that they want to be more sustainable and help reduce imbalances but if their growth rates slow, their stock prices crumble and they lose their jobs, so relentless growth is their only alternative. Since the bulk of GDP growth comes from corporate private enterprise, this idea of growth at all costs with the profits of these enterprises falling to fewer and fewer seems increasingly unsustainable and unhealthy.

GDP growth seems to have become an incredibly blunt barometer of economic health. Instead of looking at aggregate GDP growth, we should be focusing on where the growth is coming from. Is it sustainable? Or are we running down our finite resources? As Dietrich Vollrath, an economist at the University of Houston says, do we “use the existing inputs to have higher growth, higher GDP? An equally valid response to higher productivity is to use fewer inputs, work fewer hours, use fewer resources, take a longer vacation”. This may reduce GDP growth, but lead to a better outcome for our planet and our well-being.

Some business leaders will complain that focusing less on relentless GDP growth will stifle innovation. Yet reducing the need for endless expansion actually encourages innovation by focusing on increasing efficiency. The US technology sector is a very clear example of this. Despite the significantly lower GDP returns in the 21st century, Tech companies have thrived by creating steady productivity gains to the average worker, offering energy and resource savings which benefit the planet while not using as many of our limited resources.

We frame the statistics of slower growth as economic stagnation instead of economic maturity. However, as we become extremely industrialized, maybe it is the quality of our output that matters more than the quantity. Stability and sustainability become so much more important as our global population passes 8 billion people. Long term thinking often sacrifices short term profit gains for better overall solutions that benefit everyone.

Conclusion

The idea that slower GDP growth is inherently bad is a misconception. While rapid growth may be necessary for emerging economies, mature economies benefit from stability, sustainability, and innovation. Rather than fearing slower GDP increases, we should focus on the positive outcomes it brings—less economic volatility, stable wages, a higher quality of life, and a more sustainable future. In a world facing environmental challenges, technological shifts, and demographic changes, perhaps the goal should not be endless expansion, but smarter, more responsible economic progress.