Markets promptly react to flash releases of economic indicators and large sums of money are lost or made based on zero-point-something percentage points of GDP growth. But, in the excitement of new economic data, it is worth remembering how data is subject to frequent and quite substantial revisions.
Notoriously, in 2010 Japan’s most watched economic indicator was drastically revised downwards, slicing off a full 3.5 percentage points from the annualised growth rate first reported for the third quarter of 2009, prompting soul searching about the quality of Japanese economic data. But revisions occur across many countries and not only after the flash releases.
An OECD database of the various edition of the monthly publication of the Main Economic Indicators (MEI) shows how widespread the issue is.
The quarter-on-quarter GDP growth rate for the euro area for Q3 2008, for example, has changed five times since it was first published. In that case the revision was marginal, but that’s not always the case.
In various editions of the MEI, the quarter-on-quarter GDP growth for the same period was for Finland measured from -1.3% to -4.1%, whilst the various revisions for Sweden spanned from -2.4% to -5.0%. Similar large revisions were applied to the accounts of Greece, Hungary, Japan, Mexico, Sweden and Switzerland.
A long term OECD study that analysed the various revisions of GDP data for the last dozen years shows that the magnitude of revisions increases with time and that after three years the revisions are much more consistent than after one or two years as they are affected by changes in methodology and classification.
Over the last decade the figure of gross value added produced by 17 European countries in the first quarter of the year 2000 has changed almost every month and it is now measured over €150mn over what it was a decade ago.
The study noted smaller revisions for Canada, Switzerland, Germany, Spain, France, United Kingdom, Italy and the United States, while countries with higher revisions include Denmark, Finland, Japan, Korea, New Zealand. Not that smaller revisions necessarily mean better data.
The latest figure for quarter-on-quarter GDP growth the 17 countries of the Euro area for the fourth quarter of last year is an alarming -0.3%. It is probably fair to add “more or less”.