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Subscribe to our mailing list and stay informed with our myFT Daily Digest email that delivers the latest economic statistics news right to your inbox every morning. Let’s take a trip down memory lane to the double-dip recession of 2012 – a true collector’s item. After a slow climb from the depths of the 2008-09 slump, the UK’s Office for National Statistics (ONS) announced that the country’s economy had shrunk by 0.2% in the last quarter of 2011 and repeated the same decline in the first three months of 2012. However, the story didn’t end there.
By mid-2013, the ONS reevaluated the data and determined that there was no recession during the first quarter of 2012. The revisions continued, and today the ONS believes that the UK’s economy actually grew by 0.8% in Q1 2012 – a significant upgrade indeed. But before we criticize the ONS, it’s important to recognize the complexity of measuring gross domestic product (GDP). National statistics offices around the world struggle to accurately calculate these figures on the first try.
Some struggle more than others. Take Ireland, for example. When Ireland first reported its estimate for GDP growth in Q1 2015, it stood at 1.4%. However, due to unique distortions caused by its status as the headquarters for many American tech and pharma companies, this estimate was later revised to a staggering 21.4%.
On average, the latest revision of quarterly Irish GDP growth, published five years after its initial estimate, deviates from the original value by two percentage points. In comparison, the UK’s revisions are a mere 0.25 percentage points, making the ONS’s initial estimates among the most accurate in the developed world. The US follows closely behind with 0.26, while countries like Japan (0.46) and Norway (0.56) lag behind significantly.
However, the magnitude of revisions isn’t the only factor to consider – the direction is equally important. Among the 24 developed countries that consistently report quarterly GDP revisions to the OECD, the UK’s initial estimates tend to be the most pessimistic. Typically, Britain’s quarterly growth figures end up 0.15 percentage points higher than originally thought. In contrast, Germany’s figures increase by an average of 0.07, France’s by 0.04, and the US tends to revise its estimates down by 0.11 percentage points, always maintaining an optimistic outlook.
So, the next time you come across a set of quarterly growth figures, consider mentally adding 0.15 to the UK figure and subtracting 0.11 from the US figure. It may seem like a nerdy detail, but it carries weight because people rely heavily on this inherently unreliable data to construct narratives. Britain was once the only G7 economy struggling to surpass pre-Covid levels – until it wasn’t. Ireland is considered to be booming, but its actual individual consumption per capita tells a different story, steadily declining and now sitting 10% below last year.
This phenomenon isn’t limited to economic data alone. Two years ago, critics of the government’s pandemic response dubbed the UK “Plague Island” based on its reported Covid death rates, which were among the highest in the developed world. However, in hindsight, we now know that the UK’s more accurate counting methods played a role. When the dust settled, the UK’s pandemic mortality rates fell within the middle range. It wasn’t a sudden transformation from performing poorly to performing well – the initial data had simply been misleading.
We can learn a valuable lesson from the US, where careful analysts of the National Bureau of Economic Research’s business cycle dating committee decided against labeling the situation as a recession. Although estimated GDP had contracted for two consecutive quarters, more reliable indicators such as job numbers suggested it was merely a temporary setback. A recession was thus averted.
Perhaps we should all adopt a similar approach. While GDP figures remain the main statistic for tracking progress within and between countries, we should pause and reflect when these famously imprecise figures point in one direction while more reliable and tangible statistics point in another. Let’s refrain from jumping to conclusions based on flimsy data.
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John Burn-Murdoch
Email: [email protected]
Twitter: @jburnmurdoch
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