Group of Twenty economies have weathered another year of shocks, from energy price increases and persistent policy uncertainty to heightened protectionism. But this resilience should not obscure a deeper challenge: medium-term growth prospects remain weak.
We forecast annual growth for the group—which accounts for about 85 per cent of global output—of just 3 per cent in 2031, near the lowest since the global financial crisis.
In part, dimmer prospects reflect the impact of poorly designed structural policies and regulations and inadequate institutional frameworks—what we refer to as impediments to growth in this year’s G20 Report on Strong, Sustainable, Balanced, and Inclusive Growth.
While structural policies and regulations are important tools for addressing market failures and other inefficiencies that may reduce welfare and growth, they can also create difficult trade-offs, particularly if excessive or incorrectly targeted. Weak institutional frameworks, such as in public financial management, can also impede growth by reducing the efficiency and scale of public and private investment.
A new survey of IMF G20 country teams, conducted for this year’s report, highlights the prevalence of policy-related impediments to growth in three areas: business regulations and labor markets, intrajurisdictional barriers, and investment barriers.
Around half of the G20’s advanced economies and three quarters of emerging markets face constraints from excessive labor-market, product-market, or consumer protection regulations, our survey shows. Yet some economies have too little regulation in these areas.
The challenge is not simply to reduce regulation, but to get it right.
In G20 advanced economies, IMF country teams also highlighted inadequate policies to address demographic challenges—such as population ageing—and restrictions on housing and land use as significant impediments. The picture is different for G20 emerging market economies, where underdeveloped capital markets, weak public-investment management, and deficiencies in governance and institutions frequently hold back investment and growth.
In the European Union, differences in regulations, licensing, permitting, and financial markets still create intrajurisdictional barriers which prevent workers, capital, goods, and services from moving freely across the bloc. The EU is a full member of the G20, as are France, Germany, and Italy.
Evidence from news-based measures of major deregulatory reforms shows that such reforms have been associated with a boost to investment and growth in several G20 advanced economies. At the same time, broader cross-country evidence shows that liberalizing labor-market reforms are associated with output gains only where existing regulations are relatively restrictive, highlighting the importance of carefully calibrating regulations.
Despite their potential to address growth impediments, market-friendly reforms, such as easing entry in regulated sectors, have become less frequent since the 1980s and 1990s. IMF country teams identified political economy factors—such as disagreements between stakeholder groups in an economy, different levels of government, or different economies in a union—as a key constraint in most G20 economies. Overcoming such challenges requires credible institutions, clear communication and engagement with affected groups, and measures to mitigate adverse effects—such as retraining or reskilling programs or gradual implementation of reforms.
Getting regulation right is critical as economies seek to capture potential productivity benefits from adopting new technologies while mitigating risks. This year’s report to the G20 also highlights how more market-friendly telecommunications frameworks have supported investment in digital infrastructure and broader internet diffusion, helping provide the foundations for the adoption of artificial intelligence.
While sound macroeconomic policies remain the bedrock for growth, strengthening medium-term prospects for the G20 also requires well-designed regulatory and institutional frameworks that minimise policy-related impediments and provide benefits that clearly outweigh their costs.
By Nicolas Fernandez-Arias, Marwa Ibrahim, Colombe Ladreit
—This blog is based on the 2026 G20 Report on Strong, Sustainable, Balanced, and Inclusive Growth, prepared by IMF staff. See the SSBIG dashboard for additional information.
