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Output Gap, Eurozone

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This is the second recession for the Eurozone in three years. Its depth can be captured by what the economists call the output gap. An output gap measures the difference between actual growth of GDP compared to its potential growth. Potential growth is a hypothetical rate at which an economy expands when all resources are employed without causing undue inflation. We can see that Eurozone’s GDP’s grew above potential in the years immediately preceding the great recession. But then the output gap became sharply negative and has remained so ever since. The OECD, which forecasts data on potential growth, doesn’t expect the Eurozone to return to its potential growth path until past 2020. This means slow growth for at least several more years.
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Percent Change