Explain why equity and fixed income investors care about potential GDP and how fast it grows

Potential GDP is the output an economy can produce with its resources fully employed, and its growth rate is the speed limit for sustainable expansion. For equity investors, faster potential growth supports faster earnings and dividend growth. For bond investors, the gap between actual and potential output signals inflation pressure: growth above potential opens a positive output gap, pushing inflation and policy rates up and bond prices down. Faster potential growth also tends to raise equilibrium real interest rates and improves a government's ability to service debt, supporting sovereign credit quality. The trap is treating a cyclical burst of growth above potential as a permanent increase in capacity.