Some nations, including America and Britain, have lurched into budget deficits of more than 10% of GDP, a scale of shortfall not normally seen in peacetime.
Even that looks mild compared with Ireland, where income per head is now about 25% below its previous (and clearly unsustainable) trend.If the shortfall in GDP relative to trend in each year since 2007 is totted up, America has suffered a cumulative loss of $4 trillion, equivalent to a stunning $13,000 for each person.
So the public purse could be emptier than expected because the economy is weaker than the government predicts; and, as it happens, most economists think Mr Brown's forecast of 1% growth this year is too rosy.In principle a shortfall in GDP should not matter, because the public coffers would be refilled as the economy recovered.
Which sectors can one retreat to as standout counter-cyclicals if there's a shortfall in GDP numbers?
I translate all this into a 10% market risk for "downside surprises" in earnings because of the extended shortfall in GDP.
Spain's current-account deficit widened to almost 10% of GDP by last year; Greece's shortfall was 12% of its GDP (see chart 2).Italy has not followed exactly the same path, but shares some of these ills: a high real exchange rate, a current-account deficit and a weak economy.
But say that we need to reverse the obvious shortfall in nominal GDP, and you've found a more acceptable way to justify huge quantitative easing and a de facto higher inflation target.
Since exports to America and Japan account for over one-quarter of the group's GDP, efforts to offset the shortfall can do only so much.Consider Singapore's economy, which is geared towards trade, property and financial services.
Still, our modest estimate suggests that the shortfall in Cuban GDP as a result of Castro was a hefty $31.5 billion in 1995.
