Potential GDP growth will fall below 1% by 2020 as the population ages, says an OECD country survey this week.
The European Commission in May estimated the gap between actual and potential GDP in the U.S. this year at 0.5% of potential GDP.
And tax increases reduce potential GDP by a multiplier of at least one and maybe three, depending on which study you want to cite.
The longer run we anticipate catching back up, that the potential GDP of the United States has not been severely damaged by this recession.
Thus the economy's "natural" unemployment rate rises, and potential GDP falls.
In Europe, economists at the European Commission, the EU's executive arm, produce official estimates of the gap between actual and potential GDP that are crucial for calculating the structural deficit.
Earlier this year, staff at the Federal Reserve also marked down their estimate of the country's potential GDP and the output gap in response to the surprisingly steep drop in unemployment.
Amid the domestic tightening on the monetary policy side meaning higher interest rates and higher bank reserve requirements as well as weakening external demand thanks to European and American importers, investors have been increasingly worried about the potential sharp slowdown of GDP growth in China in 2012.
He repeated GDP is growing below potential, which in turn has depressed business investment and hiring, and that the labor market remains weak.
The right-hand chart, from the World Bank's latest China Quarterly Update, shows GDP growth relative to its estimated potential growth rate if the economy operated at full capacity.
The OBR is now a bit gloomier about the longer-term capacity of the economy, meaning they think our potential output will be about 1.3% of GDP smaller than previously thought by 2017.
Following this line of reasoning, future declines in GDP could lead to increased risks of recession and a potential pullback in the equity markets.
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For a country about to borrow their own annual GDP in order to keep afloat, those numbers have the potential to change everything.
Compare this to a mature market like the U.K. which has a penetration of around 14% and you can see the potential that the country holds especially considering the higher expected growth rate of GDP over time.
The idea is that setting a structural budget target will make budget writers less short-sighted: During an economic boom when actual GDP might be running above the economy's long-run potential the government's budget position will look deceptively strong, reflecting the fact that tax revenue is high and government spending on things like unemployment insurance is low.
Manufacturing may also have potential, although it would be starting from a much lower base - only 6% of GDP - and has been shrinking up until now.
The potential precedent is Japan, where nearly two decades of fiscal deficits and a deteriorating debt-to-GDP ratio have not stopped investors from buying bonds at yields of less than 2%.
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