Although the strength of the US economy in 2010 remains uncertain, it is important to look ahead to its likely performance in the coming decade. The rise of GDP over the next 10 years will reflect the very positive effect of the eventual recovery from the current deep downturn, combined with a below-trend rise in the economy’s potential output at full employment. When I add up all the key components, I conclude that the coming decade’s annual growth is likely to be about 1.9 per cent, roughly the same as the average rate over the past 10 years.

To understand why, let’s start with the cyclical recovery. I’ll make the optimistic but plausible assumption that the economy will fully recover over the next decade, lowering the unemployment rate from the current 10 per cent to about five per cent. That return to full employment will also reduce the number of people who, discouraged that no jobs exist for those with their skills, have stopped looking for work (and are therefore not counted as unemployed).

That cyclical recovery of employment will cause GDP to rise by about 13 per cent over the next decade, or an average of [...]

Read the article in full at The Times of Malta click here