Forex Flash: Advanced economies underpin weak performance – NAB

The soft patch seen in global activity through the middle of last year resulted in an increase in the amount of idle capacity in the big advanced economies. By the end of 2012 around 20% of industrial capacity in the G7 was lying unused but unemployment had not risen in step with this softening in the pace of growth. The G7’s unemployment rate has been around 8.5% since early 2011 with a fall in the US jobless rate offsetting higher unemployment in the Euro-zone.

According to the NAB Research Team, “This poor result follows a prolonged period of weak economic performance in the advanced economies. North America is the only region among the big advanced economies where GDP has convincingly climbed above its pre-crisis level.”

Elsewhere, real GDP remains below its early 2008 level with, in late 2012, GDP standing 3% below its pre-GFC level in the UK and Euro-zone and around 2½% below in Japan. This is clearly the longest period in the post-war period for output to fall so far below its long-run trend. There are many explanations for this poor outcome, many focusing on the legacy of previous unsustainable credit-driven booms followed by the onset of “busts” driven by private sector de-leveraging and banking sector problems combined with government austerity in Western Europe.