The 2020 Long-Term Budget Outlook

Gross Domestic Product

CBO expects real (inflation-adjusted) GDP to grow 1.6 percent per year, on average, over the 2020–2050 period (see Table A-2[36]). That is 0.9 percentage points less than the average growth of 2.5 percent for the past three decades and 0.3 percentage points less than CBO projected last year for the 2019–2049 period. CBO expects growth in real GDP per person to average 1.1 percent over the next three decades, 0.4 percentage points less than the average growth of 1.5 percent over the past three decades and 0.2 percentage points less than CBO projected last year for 2019 to 2049.

Table A-2.

Average Annual Values for Economic Variables That Underlie CBO’s Extended Baseline Projections

Percent

Source: Congressional Budget Office.

The extended baseline projections, which generally reflect current law, follow CBO’s 10-year baseline budget projections and then extend most of the concepts underlying those projections for the rest of the long-term projection period.

CPI-U = consumer price index for all urban consumers; GDP = gross domestic product; OASDI = Old-Age, Survivors, and Disability Insurance; * = between -0.05 percent and 0.05 percent.

a. Real values are nominal values that have been adjusted to remove the effects of changes in prices.

b. Real potential GDP is the maximum sustainable output of the economy, adjusted to remove the effects of inflation. The two contributing factors to real potential GDP growth are growth in the potential labor force and growth in potential labor force productivity. The potential labor force is the labor force (that is, the civilian noninstitutionalized population that is age 16 or older and is either working or actively seeking work), adjusted to remove the effects of fluctuations in the business cycle. Growth in potential labor force productivity is the growth of the ratio of real potential GDP to the potential labor force, or the growth in real potential GDP that is not explained by growth in the potential labor force.

c. The interest rate on all federal debt held by the public equals net interest payments in the current fiscal year divided by debt held by the public at the end of the previous fiscal year.

Projections of GDP. In CBO’s projections, the average annual growth of real GDP slows from slightly more than 1.6 percent in the first decade of the projection period to slightly less than 1.6 percent in the second decade and just over 1.5 percent in the third decade. The deceleration in growth in the second decade occurs because the potential labor force—the share of the civilian noninstitutionalized population age 16 or older that would be working or seeking work if the economy were at full employment—is expected to grow more slowly than in the first decade.7 In the third decade, however, the deceleration arises from slower growth in two areas: total factor productivity (TFP) in the nonfarm business sector, and capital accumulation.

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