ONS reports that ONS actually quite good at estimating GDP

Estimates rarely change that much, but have got worse since the crash.

A new study by the ONS (pdf) on the practice of revising quarterly GDP reveals that, despite some high-profile revisions, they are actually doing pretty well.

The current practice for GDP figures is to release a preliminary estimate 25 days after the quarter ends, then update it for a second estimate a month later, and release a final estimate shortly before the next quarter ends – before starting the whole process again. Even after the "final" estimate is made, there's the possibility of still more releases:

As further data become available there are potential revisions to the quarterly GDP figures in subsequent QNA releases, as well as in the annual national accounts Blue Book publication.

The Blue Book process enables annual data to be balanced at a much more detailed level and is also the opportunity for major methodological changes to be introduced.

Whenever the preliminary estimate delivers surprising news – as it did with the most recent results – there is always a rush to point out that these estimates are usually revised (as indeed they are). But the overall picture remains remarkably accurate. The following chart compares the GDP growth given in the initial estimate to the final estimate given five years later.

 

There are some pretty large changes month-to-month, but only one revision in the last 20 years which changed the big picture in any substantial way (the near-collapse in growth in early 1998 actually appears not to have occurred).

Even when the whole period is covered, the authors conclude:

In broad terms the picture of growth in GDP over the period from 1961 to 2012 quarter two is similar, irrespective of the maturity of data, although there are some exceptions. In particular the differences caused by revisions in the late 1980s were previously discussed in Brown et al, where a period of consistent upward revisions led to the Pickford Review (1989). The review implemented a number of methodological changes including the publication of a single measure of GDP.

But what about the most recent period of recession and recovery?Has the ONS got worse at making those initial estimates due to the changed economic circumstances?

Maybe.

The below chart shows the absolute revisions to GDP estimates in the first two years. The Pickford review of 1989, which changed the methodology substantially, clearly worked, reducing the mean revision from a change of at least 0.5 points to one of barely 0.2 points. But while there was a period of unprecedented accuracy in the late 1990s and early 2000s, things have got marginally worse recently – even while staying significantly better than they had been two decades before.

 

As a result, the review concludes that:

There is some evidence that in the latest periods, the size of revision has increased [although not significantly]. . .

It is possible that the assumptions and methods underpinning the early estimates of GDP may not be as robust in periods of greater volatility or at turning points in the economy as they were during the long period of stability from 1992 to 2007.

The most important thing to note, however, is that there is no significant trend for the direction of the revision. Although it's usually positive, it hasn't been recently:

 

So if you are hoping that a GDP estimate will be revised, be careful what you wish for – it may not go the way you hope.

GDP percentage growth, quarter on same quarter 1 year ago - estimates.

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Why Angela Merkel's comments about the UK and US shouldn't be given too much weight

The Chancellor's comments are aimed at a domestic and European audience, and she won't be abandoning Anglo-German relationships just yet.

Angela Merkel’s latest remarks do not seem well-judged but should not be given undue significance. Speaking as part of a rally in Munich for her sister party, the CSU, the German Chancellor claimed “we Europeans must really take our own fate into our hands”.

The comments should be read in the context of September's German elections and Merkel’s determination to restrain the fortune of her main political rival, Martin Schulz – obviously a strong Europhile and a committed Trump critic. Sigmar Gabriel - previously seen as a candidate to lead the left-wing SPD - has for some time been pressing for Germany and Europe to have “enough self-confidence” to stand up to Trump. He called for a “self-confident position, not just on behalf of us Germans but all Europeans”. Merkel is in part responding to this pressure.

Her words were well received by her audience. The beer hall crowd erupted into sustained applause. But taking an implicit pop at Donald Trump is hardly likely to be a divisive tactic at such a gathering. Criticising the UK post-Brexit and the US under Trump is the sort of virtue signalling guaranteed to ensure a good clap.

It’s not clear that the comments represent that much of a new departure, as she herself has since claimed. She said something similar earlier this year. In January, after the publication of Donald Trump’s interview with The Times and Bild, she said that “we Europeans have our fate in our own hands”.

At one level what Merkel said is something of a truism: in two year’s time Britain will no longer be directly deciding the fate of the EU. In future no British Prime Minister will attend the European Council, and British MEPs will leave the Parliament at the next round of European elections in 2019. Yet Merkel’s words “we Europeans”, conflate Europe and the EU, something she has previously rejected. Back in July last year, at a joint press conference with Theresa May, she said: “the UK after all remains part of Europe, if not of the Union”.

At the same press conference, Merkel also confirmed that the EU and the UK would need to continue to work together. At that time she even used the first person plural to include Britain, saying “we have certain missions also to fulfil with the rest of the world” – there the ‘we’ meant Britain and the EU, now the 'we' excludes Britain.

Her comments surely also mark a frustration born of difficulties at the G7 summit over climate change, but Britain and Germany agreed at the meeting in Sicily on the Paris Accord. More broadly, the next few months will be crucial for determining the future relationship between Britain and the EU. There will be many difficult negotiations ahead.

Merkel is widely expected to remain the German Chancellor after this autumn’s election. As the single most powerful individual in the EU27, she is the most crucial person in determining future relations between the UK and the EU. Indeed, to some extent, it was her intransigence during Cameron’s ‘renegotiation’ which precipitated Brexit itself. She also needs to watch with care growing irritation across the EU at the (perceived) extent of German influence and control over the institutions and direction of the European project. Recent reports in the Frankfurter Allgemeine Zeitung which suggested a Merkel plan for Jens Weidmann of the Bundesbank to succeed Mario Draghi at the ECB have not gone down well across southern Europe. For those critics, the hands controlling the fate of Europe are Merkel’s.

Brexit remains a crucial challenge for the EU. How the issue is handled will shape the future of the Union. Many across Europe’s capitals are worried that Brussels risks driving Britain further away than Brexit will require; they are worried lest the Channel becomes metaphorically wider and Britain turns its back on the continent. On the UK side, Theresa May has accepted the EU, and particularly Merkel’s, insistence, that there can be no cherry picking, and therefore she has committed to leaving the single market as well as the EU. May has offered a “deep and special” partnership and a comprehensive free trading arrangement. Merkel should welcome Britain’s clarity. She must work with new French President Emmanuel Macron and others to lead the EU towards a new relationship with Britain – a close partnership which protects free trade, security and the other forms of cooperation which benefit all Europeans.

Henry Newman is the director of Open Europe. He tweets @henrynewman.

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