Publication: Potential Growth: A Global Database
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Date
2023-03
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Published
2023-03
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Abstract
Potential growth—the rate of expansion an economy can sustain at full capacity and employment—is a critical driver of development progress. It is also a major input in the formulation of fiscal and monetary policies over the business cycle. This paper introduces the most comprehensive database to date, covering the nine most commonly used measures of potential growth for up to 173 countries over 1981–2021. Based on this database, the paper presents three findings. First, all measures of global potential growth show a steady and widespread decline over the past decade, with all the fundamental drivers of growth losing momentum over time. In 2011–21, potential growth was below its 2000–10 average in nearly all advanced economies and roughly 60 percent of emerging market and developing economies. Second, adverse events, such as the global financial crisis and the COVID-19 pandemic, contributed to the decline. At the country-level also, national recessions lowered potential growth even five years after their onset. Third, the persistent impact of recessions on potential growth operated through weaker growth of investment, employment, and productivity.
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“Kilic Celik, Sinem; Kose, M. Ayhan; Ohnsorge, F.; Ruch, F. Ulrich. 2023. Potential Growth: A Global Database. Policy Research Working Papers; 10354. © World Bank. http://hdl.handle.net/10986/39539 License: CC BY-NC 3.0 IGO.”
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Publication Subdued Potential Growth(World Bank, Washington, DC, 2020-03)Global potential output growth has been flagging. At 2.5 percent in 2013-17, post-crisis potential growth is 0.5 percentage point below its longer-term average and 0.9 percentage point below its average a decade ago. Compared with a decade ago, potential growth has declined 0.8 percentage point in advanced economies and 1.1 percentage point in emerging market and developing economies. The slowdown mainly reflected weaker capital accumulation but is also evidence of decelerating productivity growth and demographic trends that dampen labor supply growth. Unless countered, these forces are expected to continue and to depress global potential growth further by 0.2 percentage point over the next decade. 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