Real GDP to average 1.7% over the next decade, driven by pick-up in productivity growth
UK real GDP (year-on-year change, %) and contribution from employment and productivity (percentage points)
AI-fuelled productivity boost to drive pick-up in GDP growth
We expect real GDP to grow by 1.7% per year on average over the next decade. The pick-up in economic growth is driven by stronger growth in output per worker, or productivity, which we expect to average 1.1% over the next decade. This is stronger than the 1.2% GDP growth and 0.3% productivity growth over 2007 to 2019. Our view is that productivity across developed economies will receive a boost from artificial intelligence (AI) in the second half of the 2020s and 2030s. AI is a general-purpose technology that promises to have a wide range of applications. Capital Economics’ AI Economic Impact Index attempts to capture how well-placed economies are to benefit from AI. The index uses data on 40 indicators to rank 33 economies by their ability to innovate and adopt AI technologies, and to adapt to the structural changes that AI is expected to bring. The UK is particularly well- placed to benefit, ranking second, behind the US.
Employment
Productivity
Real GDP
10
8
6
4
2
0
-2
Ageing population and migration to weigh on employment
-4
The boost to productivity growth will more than offset weaker employment growth. Our forecast is for employment growth to average 0.6% per year over the next decade, which is weaker than the 0.9% seen between 2007 and 2019. An ageing population, outward migration and low labour force participation following the rise in people exiting the work force after the pandemic all put downward pressure on prospects for employment growth. However, there should be some support from inward net migration, which is high relative to past standards, and we do expect participation in the labour market to pick up.
-6
Real GDP, CAGR %
2001-07 2007-19 2019-23 2023-28 2028-33
2.5 1.2 0.4 1.6 1.7
-8
-10
-12
2000 2005 2010 2015 2020 2025 2030
Sources: Capital Economics and Refinitiv
10
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