A Tale of Two Depressions: What do the New Data Tell Us?

Global industrial production continues to recover – something for which policy deserves considerable credit (as we have argued on this site, see Almunia et al 2009 and O’Rourke and Eichengreen 2009). But before indulging in selfcongratulation, policymakers should note that the level of industrial production is still 6% below its previous peak (figure 1). (At the trough it was 13% below its previous peak.) It follows that considerable excess capacity remains in a number of important economies. Exiting now from policies of stimulus in those countries would therefore be premature.