Ja­pan re­views method of mea­sur­ing econ­omy

> Re­li­a­bil­ity of GDP as main growth in­di­ca­tor could be called into ques­tion glob­ally

The Sun (Malaysia) - - SUNBIZ -

TOKYO: Ja­pan is eye­ing an over­haul of how it mea­sures growth in its econ­omy, and that is stir­ring fresh ques­tions about the re­li­a­bil­ity of the world’s go-to in­di­ca­tor – gross do­mes­tic prod­uct (GDP) – in the dig­i­tal age.

Re­searchers at Ja­pan’s cen­tral bank crunched some num­bers re­cently and con­cluded that the boom­ing-econ­o­my­turned-peren­nial-lag­gard ac­tu­ally grew 2.4% in fis­cal 2014 rather than shrink­ing an of­fi­cial 0.9%.

If those num­bers are cor­rect, it might mean a re­ces­sion that year never hap­pened.

Tokyo’s re­view could have broader im­pli­ca­tions as other coun­tries also ques­tion a mea­sure­ment that was born out of the US Great De­pres­sion.

“The Bank of Ja­pan study is just the lat­est in a se­ries of new ques­tions raised about of­fi­cial GDP num­bers,” Erik Nielsen, chief econ­o­mist at UniCredit Re­search, said in a commentary.

“If we are fly­ing blind, then how can we ex­pect good pol­i­cy­mak­ing?”

Whether it’s the steel pro­duced to make your car, that tomato from the su­per­mar­ket, or your last den­tist ap­point­ment, GDP adds up the value of goods and ser­vices in an econ­omy over a cer­tain pe­riod – of­fer­ing a snap­shot of a coun­try’s pro­duc­tiv­ity.

In the old days, you might have booked a trip to Paris through a travel agent, bought a map to get your­self around the city and called the kids back home with a call­ing card. All those pur­chases go to­wards GDP. Nowa­days, many con­sumers turn to on­line book­ing apps such as Ex­pe­dia and Airbnb, tap on free-to-use on­line maps, and phone home through no-cost sites like Skype or What­sApp – and it’s not eas­ily ac­counted for.

“All that eco­nomic ac­tiv­ity that used to be in GDP is now be­ing gen­er­ated by ser­vices that are ei­ther free or are paid for by ad­ver­tis­ing rather than the con­sumer,” Pro­fes­sor Charles Bean, a for­mer deputy gov­er­nor at the Bank of Eng­land, said in a re­cent video.

Bean, tapped by Lon­don to study the prob­lem, con­cluded in a re­port this year that Bri­tain’s eco­nomic ac­tiv­ity is be­ing un­der­stated.

“Iron­i­cally, GDP may ac­tu­ally fall even though the quan­tity and qual­ity of ser­vices is in­creas­ing. Mea­sur­ing the econ­omy has never been harder.”

Lux­em­bourg-based EU sta­tis­tics agency Euro­stat has re­vised the way it mea­sured GDP to get in line with rec­om­men­da­tions from the United Na­tions Sta­tis­ti­cal Com­mis­sion.

Ac­cord­ing to the Bruegel think-tank in Brus­sels, the im­pact on base GDP num­bers from the change in method­ol­ogy var­ied hugely across the EU, from 0.3 per­cent­age points in Lux­em­bourg to 9.3 per­cent­age points in Cyprus.

Many EU coun­tries also in­tro­duced new sources of GDP and up­dated meth­ods, in­clud­ing a new, EU-wide way of mea­sur­ing il­le­gal or un­der­ground ac­tiv­i­ties such as the drug trade and pros­ti­tu­tion.

Other coun­tries face dif­fer­ent mea­sure­ment chal­lenges.

With in­fla­tion run­ning at an es­ti­mated 475% an­nu­ally, Venezuela’s cen­tral bank has stopped pub­lish­ing key eco­nomic data on a reg­u­lar ba­sis, while China, the world’s num­ber two econ­omy, has been ac­cused of tweak­ing its num­bers – in both di­rec­tions.

“The Chi­nese govern­ment likes to make the GDP trend to look smoother than it re­ally is,” said Claire Huang, a So­ci­ete Gen­erale China econ­o­mist based in Hong Kong.

For Ja­pan, the pos­si­ble cul­prits be­hind any mis-mea­sure­ment in­clude fewer com­pa­nies and house­holds fill­ing out off­i­cal sur­veys – the BoJ used tax re­turns in­stead – and miss­ing out on big chunks of the in­ter­net econ­omy. – AFP

REUTERSPIX

... Stu­dents watch the tele­vised US pres­i­den­tial debate be­tween Demo­cratic pres­i­den­tial nom­i­nee Hil­lary Clin­ton and Repub­li­can pres­i­den­tial nom­i­nee Don­ald Trump at the US Em­bassy in Tokyo, Ja­pan, yes­ter­day.

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