Subdued Potential Growth: Sources and Remedies

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. A menu of policy options is available to help
reverse this trend, including comprehensive policy initiatives to lift physical and human
capital and to encourage labor force participation by women and older workers.