Growth in the New Economy Towards a Blueprint 2026

2.3 Business environment and the role of government No-regret move: reinforce the fundamentals of economic policy Credible institutions, high-quality infrastructure and macroeconomic stability remain the essential enablers of economic performance. Effective institutions provide the predictability, trust and stability on which societies and economies depend. Institutions that are transparent, accountable and responsive to citizens and firms help sustain confidence and encourage investment.9 As technological disruption, climate risk and geopolitical uncertainty intensify, the ability of local institutions to anticipate, coordinate and adapt has become central to resilience and public trust. Physical and digital infrastructure is equally critical. Reliable transport, energy and digital systems are key enablers of growth, supporting trade, innovation and the movement of people, goods and ideas, even more so in a changing economic landscape. Widespread access to water, sanitation and waste management also remains fundamental to economic activity and public health. Finally, macroeconomic stability is essential to growth in the new economy. As economies confront structural change and mounting uncertainty, these fundamentals must be continuously renewed and adapted to new realities. No-regret move: nurture multistakeholder alignment In recent years, the thinking around the role of government in the economy and the role of businesses in society has evolved in different directions, with waves of experimentation and retrenchment. In this context, closer and more transparent engagement between the public and private sectors and civil society is a no-regret move to address shared challenges, advance priorities and mitigate risks. Quality growth depends on the ability of all actors to work together in a shared strategic direction, even more critical in the new economy. Dilemma: how to rethink the role of government in the new economy Technological disruption, climate imperatives and geopolitical fragmentation will all require new ways to create value, including the development of technologies, investment in industries and the creation of the right markets and institutions to support them. Amid growing questions on the capacity of markets to deliver these transformations at the breadth, depth and speed needed, many governments are taking a more proactive approach, shaping critical industries, directing investments and tilting market outcomes.10 Others are taking an opposite approach, hoping to accelerate market dynamics by minimizing regulation, government interventions and spending. How far governments should go in steering economic transformation, and what balance between state action and market forces is most effective, will be a key question in the new economy. “Small” governments prioritize leaner regulation; they limit themselves to setting ground rules, facilitating and de-risking private investment. By contrast, “bold” governments directly influence markets using public investment, risk-sharing and regulatory tools to set and steer economic activity towards strategic objectives. Each model carries distinct advantages and risks. Small governments may lead to fewer distortions, greater market dynamism and higher efficiency, yet risk favouring short-term gains over long-term transformation and prioritizing economic outcomes over broader strategic or societal goals (if market signals alone are insufficient). Bold governments can mobilize capital at scale, accelerate structural change and align investments and innovation with national priorities, but risk misallocation of funds, rising debt and deficits, overregulation and the entrenchment of incumbents if accountability is weak. How governments define their role in the new economy, and how the public and private sectors collaborate, will shape the trajectory of growth in the decade ahead. Dilemma: how to manage growing debts amid slowing growth Governments face significant long-term transformation needs while operating within increasingly tight fiscal conditions. From critical industries and defence to environmental protection, education and healthcare, both advanced and emerging economies’ governments face growing demands for support and investment in the economy. Yet, global public debt has been projected by the International Monetary Fund (IMF) to rise from 93% of GDP today to 100% by 2030,11 raising concerns around the long-term sustainability of public budgets across the world. Moreover, in many advanced and emerging economies, growth is expected to be weak in the medium term, reflecting different structural constraints. Against this backdrop, governments will be unable to rely only on economic growth to ensure the long- term sustainability of debt and will need to either maintain a certain level of fiscal discipline, benefit from persistently low or negative real interest rates, or some combination of both. How governments define their role in the new economy, and how the public and private sectors collaborate, will shape the trajectory of growth in the decade ahead. 11 Growth in the New Economy: Towards a Blueprint