While our estimates suggest that the economy was getting close to potential in late 2011, slower growth since then has led to a significant buildup of excess capacity. Taking into account a range of indicators and models, the Bank judges that the amount of slack today is between 1 and 2 per cent.
Given the enormous complexity in estimating potential output, it is no surprise that the various indicators monitored by the Bank suggest a range, rather than a single point. Furthermore, distinguishing between movements in indicators that reflect cyclical demanddriven factors from those that are more structural is very tricky. Let’s take the employment-topopulation ratio as one example.