The long-term potential growth rate for advanced economies will decelerate to an average of 1,8%, down from average potential growth of 2,5% during 1990–2007, according to an analysis utilising the Global Link Model from IHS.
Although actual real gross domestic product (GDP) growth will fluctuate over business cycles and may well exceed 2,5%, or even 3%, the longer-term trend growth rate for advanced economies is 1,8%. For the US, long-term growth potential is 2,3% per year.
In the long-term (2020–2045), the five economies with the highest potential growth are all in Asia-Pacific (in descending order): India, Vietnam, Philippines, Indonesia, and China. The next five highest potential growth countries are in Latin America, North Africa, and Sub Saharan Africa: Chile, South Africa, Peru, Egypt, and Angola.
The countries with the lowest long-term potential growth rates tend to be advanced economies, where demographic factors are most likely to impinge on growth. In the long-term, the five economies with the lowest potential growth rates are Japan, Italy, Switzerland, Kuwait and Portugal.
Potential real GDP measures an economy’s productive capacity and it is assumed that in the long run, the short-term imbalances that cause business cycles are smoothed out such that actual real GDP converges to potential. Long-term growth is determined by the available labour supply, available private and public capital stock, energy infrastructure and total factor productivity (TFP).