The World Bank has raised an intriguing possibility regarding the United States economy: its underlying growth capacity might be stronger than previously believed. According to the institution's deputy chief economist, Ayhan Kose, there are signs that the rate of potential growth—often described as the economy's 'speed limit'—could be experiencing a sustained increase.
Reassessing Economic Fundamentals
In a recent interview, Kose highlighted the unexpected resilience demonstrated by the global economy amidst numerous shocks, with the United States recording another year of surprisingly robust expansion. The World Bank estimates that the U.S. economy grew by 2.1% in 2025, contributing to an average growth rate of 2.6% since 2022. This compares favorably to the 2.2% average seen in the decade through 2020, excluding the anomalous 6.2% rebound in 2021 following COVID-19 shutdowns.
"We need to increasingly think whether the economy's potential growth has been increasing," Kose stated, pointing to the consistent performance as evidence that warrants a reevaluation of economic fundamentals.
Understanding Potential Growth
Potential growth represents the pace at which an economy can expand while utilizing all available resources without triggering inflationary pressures. This metric is crucial for policymakers as it helps gauge future inflation risks and forecast tax revenue performance. Currently, the Congressional Budget Office pegs the U.S. potential growth rate at 1.8%.
A higher potential growth rate would imply that the economy could sustain faster expansion without necessitating interest rate hikes from the Federal Reserve. Additionally, it would suggest that budget deficits might be smaller than current projections.
Factors Driving the Shift
Changes in potential growth typically stem from demographic shifts or productivity improvements. Kose identified several contributing factors in the U.S. context: "Given the investment boom, given year after year of supportive fiscal policy, and of course if you look at productivity numbers improving, you can make a case that there is a level change in potential growth, maybe it's now 2.2%, maybe it's 2.4%."
The World Bank projects the U.S. economy to grow slightly faster at 2.2% this year. However, some institutions offer more optimistic forecasts. BNP Paribas, for instance, anticipates expansion of 2.9% for the world's largest economy.
Global Implications and Divergence
A more resilient and faster-growing U.S. economy would provide significant support to the global economic landscape, boosting demand for goods and services produced internationally. "That has huge implications for the global economy," Kose emphasized. "You basically have this largest economy doing very well despite the fact that it has been buffeted by a number of shocks. That also helps the global economy."
This potential uplift comes at a critical time. In stark contrast to the performance of the U.S., India, and a few other nations, global growth remains weaker than pre-pandemic levels, particularly in poorer regions. The World Bank estimates that per capita incomes in one out of four developing countries have yet to recover to their 2019 levels.
"There is this great recovery, but there is this great divergence as well," Kose noted, expressing concern about slower-growing countries with burgeoning youth populations that will require employment opportunities in the coming decade. "This is a very serious threat to the stability of those economies," he warned.
Productivity and Technological Impact
While some analysts view the recent productivity gains as potentially temporary—attributing them to subdued hiring during periods of uncertainty—others see them as indicative of broader trends. Isabelle Mateos y Lago, chief economist at BNP Paribas, suggested, "It is possible this step-increase in productivity is sustained and not limited to the U.S."
The International Monetary Fund supports this perspective, estimating that the adoption of new technologies, including artificial intelligence, could enhance global growth by 0.1 to 0.8 percentage points annually over the medium term. IMF Managing Director Kristalina Georgieva described the upper end of this range as "big," noting that it could elevate global growth above pre-pandemic levels if realized.
As the World Bank continues to monitor these developments, the reassessment of the U.S. economy's growth potential underscores the dynamic nature of global economic recovery and the persistent challenges of inequality across nations.
