REVISIONS TO ECONOMIC data are common. It’s rare that tweaks to already published figures make big news. But then it’s also rare for statisticians at the Office for National Statistics (ONS), the body that produces Britain’s official data, to make dramatic adjustments. Last week, in effect, they found almost two percentage points’ worth of GDP hidden behind a sofa.
In an update on September 1st, the ONS rewrote Britain’s recent economic history. Previously official data had shown the economy, at the end of 2021, to be still 1.2% below its pre-pandemic size. Now it reports that national output at the time was in fact 0.6% higher. As the government has been quick to point out, the revisions make a notable impact on Britain’s performance relative to its peers. For much of the past two years Britain had appeared to be a global laggard, with the weakest growth of any of the G7 group of leading rich economies. After the revisions the performance, if hardly stellar, looks more respectable. Britain has been outgrowing Germany, for example, and has achieved a pace comparable to that of France (see chart).
GDP numbers are always subject to revision as more information becomes available and they should, in theory at least, grow more accurate as time moves on. The latest updates mark a large absolute adjustment, but are not unusual in proportion to the underlying changes in GDP to which they relate. The magnitude of the swings in national output in 2020 and 2021 was without recent precedent. For that reason, proportionally normal revisions add up to big changes in the headline figures. Even without the wild gyrations in GDP, the pandemic was a tricky time for compiling data. For example, with many workers trapped at home, firms did not make it a priority to fill in forms for official statisticians.
One big adjustment concerns stockpiling. The ONS now reckons that in 2020 companies were adding to their piles of unsold stocks, rather than running them down. That inventory build-up meant that the reported fall in GDP was less severe than first thought: 10.4% rather than 11%.
More significantly, growth in 2021 has been notched upwards from 7.6% to 8.7%. Whereas the initial estimates for this year were mostly based on companies’ reported turnover figures, the ONS now has access to more detailed surveys. These allow it to examine the inputs and outputs of different sectors with a finer degree of granularity. That, coupled with an updated methodology to match the latest international statistical standards, has led it to believe that margins in 2021 were generally healthier than previously thought. That meant profits, income and GDP were higher than first understood.
The change in the level of GDP was large, but it was mostly concentrated in two quarters: the second quarter of 2020, near the beginning of the pandemic, and the second quarter of 2021, during the re-opening after the rollout of vaccines. The broad trajectory of the recovery remains unchanged, although the initial fall in output was a bit less steep than once feared and the first recovery turned out somewhat faster.
Just as significant as the changes in the headline numbers are the underlying shifts in the sectoral composition of growth. In wholesale trade, the change in gross value added (a measure of the value of goods and services produced by a sector) in 2021 was revised up from just 2.7% to 32.4%. The growth in output of health services was lifted from 34.6% to 57.1%. That reflects better accounting of the economic impact of the vaccine rollout, the test-and-trace programme and more robust recovery in regular health services than once thought. The broad picture is that the service sector did better than previously believed, though the manufacturing, construction and agricultural sectors performed worse.
The revisions help to explain away some mysterious quirks of Britain’s recent economic performance. The Office for Budget Responsibility (OBR), the government’s fiscal watchdog, had been struggling to reconcile surprisingly resilient tax receipts with tepid economic growth. The revisions have resolved that puzzle. However, they are not likely to lead to large shifts in the OBR’s forecasts for the fiscal picture: no one should expect a cut in taxes or a boost to spending as a result. The once equally perplexing strength of hiring now also makes more sense.
The ONS is keen to point out that it is one of the first national statistics bodies to update its estimates for 2020 and 2021 in light of better data on sectoral inputs and outputs. Other countries will follow suit in the months to come, and their own GDP rates may also be revised (if so, probably upwards too). Britain’s better performance relative to her peers, therefore, might not last long.
Before the ONS rewrote the story of 2020 and 2021, the economy’s performance looked abysmal. After the data revisions it looks merely poor. The fact that output managed to surpass the pre-pandemic peak by the end of 2021 is to be welcomed. But even now the comparative performance is at best middling. The gloom may have been overdone, but the economic narrative has not fundamentally changed. ■
Britain's statisticians fix a blunder and find a bigger economy - The Economist
Read More
No comments:
Post a Comment