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Supply Chain Graphic of the Week World Bank Says Global Output Gap Gone for First Time in 10 Years

 

Globally, the Slack in Capacity Utilization is almost Gone

Jan. 12, 2018
SCDigest Editorial Staff

A broad-based increase in economic growth around the world last year has led economists at the World Bank to conclude that, for the first time in a decade, the global economy is operating at its potential.

"The year 2018 will likely mark a turning point for the global economy because, for the first time since 2008, the negative global output gap is expected to be closed," the World Bank said in an annual report on the global economy, titled "Global Economic Prospects."

 

This difference between the economy's actual performance and its potential is known as the "output gap." When output gaps are large, as they have been the past 10 years, it indicates weak economic demand, spare capacity of businesses and factories, widespread unemployment and a major drag on inflationary pressures.

 

Globally, the slack in capacity utilization is almost gone, the World Bank says. Its data on the output gap - and sometimes "demand surplus" - over time is shown below.

 

 

 

This is of course great economic news overall. What's more, the World Bank says the fears of deflation that were rampant just a few years ago are largely gone, and in fact a new worry may be too much inflation before long

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