Chart 4: Pre-crisis euro-area output gaps(a) Per cent of potential GDP 7 Revisions between 2007 and 2013 Current estimate  6 5 4 3 2 1 0  France  Germany  Ireland  Italy  Portugal  Spain  Source: International Monetary Fund World Economic Outlook, April 2007 and April 2013. (a) Data sourced from April 2007 and April 2013 IMF estimates of the output gap for each country in 2007. 8  BIS central bankers’ speeches  Chart 5: Spreads of 10-year sovereign bonds over Bunds Percentage points 7 Euro launch  6 5  Italy  4  Spain  3 2 1 0 -1 1995  1997  1999  2001  2003  2005  2007  2009  2011  2013  Source: Bloomberg. Chart 6: Domestic demand and GDP Indices: 2000 = 100 140 Domestic demand  GDP  Germany  Germany  Spain  Spain  130 120 110 100 90 80 70  1991  1993  1995  1997  1999  2001  2003  2005  2007  2009  2011  Source: Eurostat. BIS central bankers’ speeches  9  Chart 7: Nominal unit labour costs Indices: 2000 = 100 160 Tradables(a) Germany  Non-tradables Germany Spain  150 140  Spain  130 120 110 100 90 80 70 60  2002  2000  2004  2006  2008  2010  2012  Sources: Thomson Reuters Datastream and Bank calculations.
Chart 11 provides an assessment, drawing on IMF analysis, of the evolution of structural deficits and surpluses for two alternative scenarios, with the red dashed line corresponding to an assumption that supply impairment in the advanced economies as a result of the crisis is minimal (and therefore output gaps are correspondingly large), whereas the blue dashed line – which corresponds to the IMF’s central case – assumes a relatively high degree of supply impairment (and therefore substantially smaller output gaps). In the former case, the bulk of the post-crisis narrowing in imbalances is attributed to cyclical factors, whereas in the latter they are attributed to structural factors. Clearly, depending how one reads the data, one can arrive at a different conclusion. An alternative way into this is to look at what has happened to relative prices, rather than quantities. A natural counterpart of a rotation in demand from the advanced to the emerging world should be a fall in the real exchange rates of the former and a rise in those of the latter. By increasing the profitability in deficit countries of producing internationally tradable goods and services relative to that of non-tradables, that should facilitate the necessary shift of resources between sectors. The opposite is true for the emerging economies. Chart 12 shows such a shift has taken place since before the crisis, with both sterling and the dollar depreciating in real terms, and the renminbi appreciating.