Nomura's Senior FX Strategist for Europe, Middle East and Africa, Yujiro Goto, outlines the reasons for underperformance of the Euro's GDP and how it compares to Japan's experience.
Euro area real GDP has underperformed Japan in the 8 years following the peak of the Japanese crisis. We believe that the reasons behind this underperformance are due to the fact that the region was ill-equipped to respond to Japanese style shocks (even if the magnitude of these negative shocks seems to have been somewhat less pronounced, see Figure 1). Contrary to the US, the Euro area failed to draw early lessons from the Japanese experience as it continuously rejected the analogy. But what put the Euro area in a more challenging situation to that of Japan is, in our view, related to factors which are more idiosyncratic to the region.
Euro area’s own idiosyncratic challenges
Although the magnitude of the shocks that hit the Euro area – when compared to Japan – seems on the whole to have been somewhat smaller, we find overwhelming evidence that the region faces greater challenges when considering specific factors that are mostly idiosyncratic to the Euro area (Figure 2).
Read more of Yujiro Goto's insights on the Global Research Portal.