Today’s preliminary data on economic growth in the first quarter of 2013 must have triggered a sigh of relief in Downing Street, showing as they do a slight – very slight – increase in GDP and thus bucking predictions that the country was sliding into an ignominious triple dip recession.
But the Chancellor shouldn’t feel too relieved; in actuality, we have no idea whether the country grew in the past three months.
Only eight countries have seen their GDP drop since 2007 and their government debt top 100 percent of GDP; you can probably name five of that select group easily. Yes, they are the usual Eurozone suspects, plus Japan. But who are the other three?
Perhaps surprisingly, they are all Caribbean countries.
With the focus on today’s UK GDP numbers showing the UK is technically back in recession after the economy shrunk 0.2 percent in the first quarter, it is worth remembering another important aspect of GDP – levels.
The most recent IMF World Economic Outlook shows clearly that three of the G7 economies Japan, the UK and – more drastically – Italy have never managed to go back to pre-crisis levels of GDP.
GDP growth rebased
Why does this matter? Well it isn’t until pre-crisis levels of GDP are reached it can be meaningfully said economies have returned to some sort of normality (my colleague Keith Fray has written more about this)
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.