Markets
GDP

Why potential growth matters

VAlek Studio / Shutterstock.
VAlek Studio / Shutterstock.

Macroeconomic uncertainty is on the rise after the U.S. move to impose steel and aluminum import tariffs. However, assuming we do not see a more protectionist U.S. stance on trade that harms growth prospects , we expect U.S. fiscal stimulus to bump up U.S. growth by about 1 percentage point in 2018. This growth bump comes just as the economy reaches full capacity and raises the risks of swelling budget deficits and of the U.S. overheating. Markets have been grappling with these implications . How they further adapt depends crucially on long-run potential growth, a measurement key for gauging the degree of overheating-or how much output is running above full capacity. Potential growth represents the highest speed at which an economy could grow over the long term. We see two reasons why potential growth may get a rare post-Great Recession upgrade-even if it stays well below pre-crisis estimates, as we write in our Global macro outlook The secular stagnation that never was?

Potential growth may be higher than is widely assumed.

Stagnation fears in action
Feb 2018 Macro Outlook Charts
GDP

A key ingredient of potential growth-productivity-looks poised for a rebound.

Global macro outlook

The implications for markets?

Jean Boivin , PhD, is Global Head of Research for the BlackRock Investment Institute. He is a regular contributor to The Blog .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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