Why circularity won’t stop GDP growth
By Professor Dato Dr Ahmad Ibrahim
The linear economy has powered an unprecedented expansion in GDP. But as resource scarcity and climate collapse begin to bite, the very metric we use to measure prosperity is now being weaponized against the solution. If a circular economy aims to use fewer virgin resources, produce less waste, and make products last longer, won’t it inevitably shrink the throughput that GDP measures? If we stop mining, stop discarding, and stop replacing perfectly functional goods, where will the growth come from?
A well-designed circular economy does not reduce GDP growth; it fundamentally changes the composition of GDP, decoupling value creation from volume expansion. To assume that circularity kills growth is to confuse activity with progress. In our current linear model, GDP is artificially inflated by what economists call “defensive expenditures” and planned obsolescence. When a smartphone is designed to fail after 24 months, the subsequent replacement contributes to GDP. When a hurricane destroys a coastal city, the reconstruction costs add to GDP. When we ship waste across oceans to be “recycled” in inefficient facilities, that logistics chain counts as growth.
Circularity doesn’t eliminate economic activity; it eliminates wasteful economic activity. It shifts the locus of value from volume of raw materials to quality of services, durability of assets, and sophistication of reverse logistics. Consider the shift from selling a car to selling “mobility as a service.” Under the linear model, an automaker wants to sell as many units as possible, regardless of whether they are needed. Under a circular model, if a manufacturer retains ownership of the vehicle and leases it by the mile, their incentive flips. They now want the car to last longer and be maintained cheaper. This doesn’t eliminate GDP; it shifts it. The GDP that used to come from selling a new car every three years now comes from engineering services, high-durability material manufacturing, predictive maintenance software, and remanufacturing hubs.
Is that a reduction in growth? The fear of degrowth is rooted in a static view of the economy. It assumes that if you stop digging up lithium for disposable goods, the economy stops. But history shows that resource constraints are powerful catalysts for innovation—and innovation is the only sustainable driver of GDP growth. The circular economy opens up entirely new industrial sectors. Reverse logistics—the science of taking back, disassembling, and remanufacturing products—is a massive job creator. In the European Union, sectors related to repair, reuse, and recycling already employ millions, and these jobs are notably harder to outsource than assembly line work. You cannot offshore the repair of a washing machine or the refurbishment of a medical device.
Furthermore, circularity solves the volatility problem that plagues linear growth. GDP is currently held hostage by commodity price shocks. When a geopolitical crisis spikes the cost of nickel or copper, manufacturing stalls, and growth stutters. A circular economy, by creating vast urban mines of secondary materials, insulates economies from that volatility. Predictable material costs lead to predictable capital investment, which is the bedrock of stable GDP growth. Much of the anxiety about circularity reducing GDP stems from a fundamental accounting flaw: GDP was never designed to measure sustainability.
GDP is a flow metric. It measures transactions. In a linear economy, when a resource is extracted, turned into a product, used briefly, and then landfilled, it generates a transaction at every step—extraction, manufacturing, retail, disposal. In a circular economy, the extraction step diminishes, but the maintenance, remanufacturing, and high-value recycling steps expand.
If a circular economy leads to a 20% reduction in raw material extraction but a 50% increase in high-tech remanufacturing employment and a 30% increase in energy efficiency savings, has GDP fallen? It depends on how we count. Currently, if a company saves money by using recycled materials instead of virgin ones, the drop-in mining revenue shows up as a negative, while the savings—which could be reinvested into R&D or wages—are invisible in the top-line GDP number.
We are trying to use a 20th-century metric to validate a 21st-century transition. The question isn’t whether circularity reduces GDP; it’s whether we are willing to recognize that GDP is a poor proxy for prosperity. Will the circular economy reduce GDP growth? In the short term, during the transition, there will be disruptions. Industries built on the linear model—virgin resource extraction, disposable packaging, high-volume landfill—will face contraction. Governments that rely on royalties from mining will feel the pinch. We would be naive to pretend otherwise. The circular economy does not aim to make us poorer by consuming less; it aims to make us richer by wasting less. It replaces the fragile growth of volume with the resilient growth of value.
The author is affiliated with the Tan Sri Omar Centre for STI Policy Studies at UCSI University and is an Adjunct Professor at the Ungku Aziz Centre for Development Studies, Universiti Malaya. He can be reached at ahmadibrahim@ucsiuniversity.edu.my.