IHS: Growth Rates of 3% "Relic of Economic History"

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The long-term potential growth rate for advanced economies will decelerate to an average of 1.8 percent, down from average potential growth of 2.5 percent during 1990–2007, according to an analysis utilizing the Global Link Model from IHS Inc., the leading global source of critical information and insight.

Although actual real gross domestic product (GDP) growth will fluctuate over business cycles and may well exceed 2.5 percent, or even 3.0 percent, the longer-term trend growth rate for advanced economies is 1.8 percent. For the United States, long-term growth potential is 2.3 percent 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 labor supply, available private and public capital stock, energy infrastructure and total factor productivity (TFP).

The IHS Global Link Model links 68 individual country models—accounting for 95 percent of global GDP— with each other and with global drivers of economic performance.

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