BUSINESS CYCLES

BUSINESS CYCLES The “output gap” is the difference between an economy's actual GDP and its potential GDP (a level of output consistent with full employment and historical trends in productivity). A positive “output gap” suggests that an economy is growing unsustainably fast and may predict inflation; a negative gap is a sign of slack. The output gap is not a wholly precise measure: it may underestimate the permanence of technological advances. The OECD predicts an average output gap of 0.7% within the G7 nations this year, the largest imbalance since 1990. Ireland and the United States top the list as they did last year, with gaps of 4.0% and 3.1%. Japan (-3.5%) and Italy (-1.7%) are still underperforming. The euro zone boasts a fairly balanced economy with a gap of -0.1%.