The International Monetary Fund (IMF) has warned that poorly designed regulations and weak institutional frameworks could continue to weigh on economic growth across G20 economies, with the group’s medium-term growth prospects expected to remain weak.

The IMF said the G20, which accounts for about 85 per cent of global output, is forecast to record annual growth of just three per cent in 2031, close to its lowest level since the global financial crisis.

In its 2026 G20 Report on Strong, Sustainable, Balanced, and Inclusive Growth, the Fund said excessive or poorly targeted regulations, as well as weak institutional frameworks, were among the factors limiting the ability of economies to achieve stronger and more sustainable growth.

The report, prepared by IMF staff, said the G20 economies had weathered another year of shocks, including energy price increases, persistent policy uncertainty and heightened protectionism. However, it noted that the resilience of these economies should not hide the deeper challenge posed by weak medium-term growth prospects.

According to the IMF, structural policies and regulations are important for addressing market failures and other inefficiencies that can affect welfare and growth.

However, it said such policies could create difficult trade-offs when they were excessive or incorrectly targeted.

It added that weak institutional frameworks, particularly in areas such as public financial management, could also restrict growth by reducing the efficiency and scale of both public and private investment.

A new survey of IMF G20 country teams conducted for the report identified policy-related impediments to growth in three broad areas: business regulations and labour markets, intrajurisdictional barriers, and investment barriers.

The survey showed that about half of G20 advanced economies and three-quarters of emerging market economies face constraints arising from excessive labour-market, product-market or consumer protection regulations.

However, the IMF noted that some economies also have too little regulation in these areas, stressing that the challenge was not simply to reduce regulation but to ensure that it was appropriately designed.

“The challenge is not simply to reduce regulation, but to get it right,” the Fund said.

The report also identified differences among G20 economies in the nature of the constraints holding back growth. In advanced economies, IMF country teams pointed to inadequate policies for addressing demographic challenges, including population ageing, as well as restrictions on housing and land use.

For emerging market economies, the Fund said underdeveloped capital markets, weak public investment management, and deficiencies in governance and institutions frequently constrained investment and economic growth.

The IMF also highlighted barriers within jurisdictions, pointing to differences in regulations, licensing, permitting and financial markets in the European Union. It said such differences continued to restrict the free movement of workers, capital, goods and services across the bloc.

The Fund said evidence from news-based measures of major deregulatory reforms showed that such reforms had been associated with increased investment and growth in several G20 advanced economies.

However, it cautioned that the benefits of regulatory reform depend on the conditions in which reforms are introduced. Broader cross-country evidence, it said, showed that liberalising labour-market reforms were associated with higher output only where existing regulations were relatively restrictive.

“This highlights the importance of carefully calibrating regulations,” the IMF said.

Despite the potential of market-friendly reforms to address growth constraints, the Fund said such measures, including easing entry into regulated sectors, had become less frequent since the 1980s and 1990s.

It identified political economy factors as a major obstacle to reform in most G20 economies. These include disagreements between stakeholder groups, different levels of government and, in the case of economic unions, differences among member economies.

The IMF said overcoming these challenges would require credible institutions, clear communication and engagement with affected groups. It also recommended measures to reduce the adverse effects of reforms, including retraining and reskilling programmes and gradual implementation.