GDP growth of 4.6 per cent remained modest, particularly since it had not fed into job creation.

Compared to countries with very slow growth rates, countries with reasonably high growth rates should borrow. But when a country s growth rate continues to increase, its saving rate would increase faster than its investment rate, so it is more likely to run a current account surplus.

Some countries face the growing risk of near perpetual belt tightening, which would further dampen growth and thus keep debt ratios high. After all, if a country s debt GDP ratio is to decline without austerity, the interest rate that it pays on its debt must be lower than its GDP growth rate.

Why, then, has India s GDP growth slowed so much, from nearly 10 year on year in 2010 11 to 5 today? Was annual growth of almost 8 in the decade from 2002 to 2012 an aberration?

For example, US real per capita GDP grew by a factor of 1.87 that is, nearly doubled in size from 1961 to 1986, but by a factor of only 1.58 from 1978 to 2003. Such differences in 25 year growth rates are important if US GDP grows by a factor of 1.87 over the next 25 years, annual GDP will be 3.6 trillion ( 10,000 per person) higher than if it grows by a factor of only 1.58.

And the GDP in Africa is not making much progress.

Gordon also points to the recent slowdown in real (inflation adjusted) GDP growth. According to official US statistics, real GDP per worker grew at an average annual rate of 2.3 from 1891 to 1972, but by only 1.5 since then.

A back of the envelope calculation suffices to show that, unless the government is prepared to tolerate a further increase in the investment rate, achieving a GDP growth target of 7.5 implies a significant fall in the growth rate of investment. To compensate for the negative impact on GDP growth, and with export growth constrained by weak global demand, consumption must rise even more sharply, which is hard to imagine.

The success of the East Asian model was predicated on a sharp increase in the investment rate. Beginning with Japan, every rapidly growing East Asian economy sustained investment rates in the range of 38 40 of GDP over its rapid growth phase.

The rate of increase approximated estimated population growth.

But, as fertility declines and populations age, the labor engine s contribution to growth will fall sharply, to little more than 0.3 percentage points of annual growth. Even if productivity continues to rise at the same rate, global GDP growth could slow to just over 2 annually, on average a 40 drop from the last 50 years.

The unemployment rate remains about two percentage points higher than what most economists consider consistent with a full recovery, and the labor force participation rate is hovering near historic lows. The economy is still operating far below its potential GDP is about 6 below what the economy is capable of producing at full capacity without higher inflation.

In terms of investment, the International Monetary Fund predicts that a disruption in China s investment boom will adversely affect its trading partners. A drop of one percentage point in China s investment rate is estimated to reduce Taiwan s GDP growth rate by 0.9 percentage points and Korea s by 0.6 percentage points.

The economy therefore limped along year after year, with real GDP in the final quarter of each year less than 2 higher than it had been a year earlier. Employment grew more slowly than the population, and annual real wage increases averaged only about 1 .

For Greece, with an overall deficit of 4.1 of GDP and a debt GDP ratio of 170 , the debt ratio would fall if the combination of inflation and real (inflation adjusted) GDP growth exceeded 2.4 . Stated differently, now that Greece has achieved a zero primary budget deficit, its debt burden will decline if its nominal growth rate exceeds the average interest that it pays on its government debt.

Few would argue against China s need for slower but better growth. The problem is that if China wishes to lower the GDP growth rate to 7.5 in 2012, from 9.2 in 2011, without worsening the growth pattern by raising the high investment rate even further, the annual growth rate of investment must be equal to or less than 7.5 .

Final sales to households, businesses, and foreign buyers rose at only a 1.1 annual rate, even slower than earlier in the year. And the preliminary estimate for annual GDP growth in the first quarter of 2012 was a disappointing 2.2 , with only a 1.6 rise in final sales.

The growth rate has dropped to 1.2 per cent, while the population growth rate has remained at 3 per cent.

In both this recovery and the previous two, the rebound in employment growth has been weaker and later than the rebound in GDP growth. But the loss of jobs in the most recent recession was more than twice as large as in previous recessions, so a slow recovery has meant a much higher unemployment rate for a much longer period.

The collapse of China s credit bubble would likely cause annual GDP growth to drop to 1 2 , on average, for the subsequent four years, assuming a 2 annual decline in capital expenditure and a still respectable consumption growth rate of 3 5 . Consolidated public sector debt would rise to 100 of GDP.

Annual rate of increase

Total growth rate

(Growth per annum)

LDCs Growth rate6

According to preliminary reports, annual investment growth in 2012 reached roughly 14 significantly higher than the GDP growth rate, which accelerated in the fourth quarter as a result of a strong rebound in investment in real estate and infrastructure. In 2013, it can be expected that, barring major disruptions, strong investment growth will push China s GDP more than 8 higher year on year.

The rate of increase approximated estimated population growth.

Interest Rates

Efficiency gains

Natural increase

(f) Population growth

Economic growth rates reveal the same gap. From 1978 to 2003, annual real GDP growth in China averaged 8.1 while growth in Mexico the fastest in Latin America, barely reached 1 a year.

This pattern should be a cause for concern, because annual GDP growth in the eurozone during the past decade has averaged about 1 . Similarly, average annual growth in the United States has slowed from around 4 between 1870 and 1973 to roughly 2 since then.

In the last two years, credit grew almost twice as fast as GDP, and total social financing grew even faster. Yet GDP growth slowed considerably from an annual average of 10.2 in 2002 2011 suggesting that China may be moving closer to a medium to low speed growth path.

But real income gains of 1.3 per year for the middle quintiles and 1.1 for the bottom are not exactly chopped liver, are they? The gap with 1.6 average annual growth rate for per capita GDP is small, isn t it?

In economic terms, the world is entering an era of diminished expectations. If, as predicted, average annual GDP growth amounts to 3 in the foreseeable future, it will take 25 years for the world economy to double in size ten years longer than it took before the global economic crisis, when average GDP growth stood at 5 .

An examination of the growth rates by district revealed that the highest increase occurred in the Nablus area (11.2 per cent).

The population of Windhoek has been increasing at an annual rate of 5,4 between 1991 and 1995, the largest annual growth rate in history.

Growth rate ( )

EMPLOYMENT GROWTH, 1991 1994

3. Population growth rates

When it comes to GDP growth, most countries recorded 3 4 annual rates on average in the period between the crises of 1999 and 2009. Countries like Uruguay, Mexico, and El Salvador grew at a mere 2 2.5 rate.

The rate of increase approximately matched estimated population growth.

To be sure, capital accumulation is a driving force of economic growth, and catching up with developed country income levels implies that China must increase its capital stock in the long run. But what is at issue is not the size of the capital stock, or even the level of investment the problem is the growth rate of investment, which has been significantly higher than that of GDP for decades.

Second, persistent weakness in consumption and GDP growth puts the US economy on a much weaker growth trajectory than that which is built into the government s long term budget estimates. The Congressional Budget Office is assuming 3.4 average growth in real GDP over the 2013 to 2016 period.

The change in a country s debt burden reflects the size of its primary budget balance (the balance minus interest payments) as a share of GDP, as well as the difference between its borrowing costs and its GDP growth rate. When the difference between borrowing costs and growth becomes too large, the primary budget surpluses required to stop debt from increasing become impossible to achieve.