6th February 2018
BlackRock: Room to run
Background
Expansions come and expansions go. We see this one hanging around for longer than many expect. Yes, the G7 output gap – the difference between actual output and economic potential – is shrinking as the US economy has joined Germany, the UK and Canada in running near full capacity. See the Filling up chart (below). Yet when growth is only slightly above trend, economies can run beyond potential for a long time before peaking, our analysis shows. And plenty of spare capacity in parts of Europe means the developed world as a whole (not just the G7) still has a hefty output gap. This suggests to us that the remaining time to this cycle’s peak is likely years, not quarters.
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