Not only did the global rate of growth slump during the economic downturn that lasted from two thousand and seven to two thousand and nine, but according to the International Fund, world’s growth potential also took a big hit. Potential growth represents the measure of how rapidly economies can expand over time without triggering unacceptably high rates of inflation.
Potential growth in many of the world’s richest economies as already slowing due to aging populations and slowing innovation relative to the late nineteen nineties. As reported in the New York Times, the downturn led to declines in investment and employment creation, which reduced annual potential growth among the world’s most developed economies to just one point three percent between two thousand and eight and two thousand and fourteen.
Over the next five years, the annual growth potential of advanced economies is expected to increase to one point six percent, but that is still low pre-crisis growth rates. There are many implications to slower growth, including greater difficulty accumulating resources to pay down public sector debt and invest in public pensions. Many advanced economies are also likely to actively strive to keep interest rates low for years to come.
