Nominal GDP in the European Periphery

I love those upward only graphs of the future. They are ubiquitous. I saw one from 1944 recently. It showed Albert Speer projecting German missile production out into 1946 and beyond.

(2016 – 2007) = 0. That’s real fancy math!

By 2016 oil prices should be where? And that will leave us where? We are going to have a ‘dead cat bounce’ – all that QE nonsense. Then it will be another bounce. We will be at this for a while yet.

BpW

Ireland, the fastest growing economy from today until 2016. Yeah, and pigs can fly.

Pie in the sky nonsense.

Sorry. The graph is out of date already. The IMF have reduced their growth forecast for Ireland from .9 to .5 for next year.

@Philip

Given the ongoing sport in deriding any sort of economic forecast especially of a macro variety (and rightly so as they change by the week) is alive and well – is it possible perhaps to do a backtest on IMF world growth predictions versus actual outcomes over the past decade to see the extent of the errors in these forecasts and by applying such average errors to actual we should in theory be able to establish a range of possible outcomes as opposed to this pretty daft binary forecast.

It never ceases to amaze me why the IMF and other macro forecasters seek to pin their collective good names on numbers they know are going to be incorrect, and then leave themselves open to contributors like those on this site and probably thousands of others to deride their work. Why do it?

Wow! Ireland fastest with Spain coming in a close second… makes me regret uprooting the family and moving to Australia…not!!

I wonder what the graph would look like if we concede corporation taxation…

@Philip Lane

The figures are distorted by two factors:

(a) They use nominal GDP instead of real GDP.

Since when has nominal GDP been the measure of economic growth? If it was the most accurate measure, then why not just print lots of money and allow nominal GDP to soar, ignoring the fact that prices would also be soaring. Between 2007 and 2010, real GDP in Ireland fell by 11.8% and not the near 20% shown in the chart. Similarily, because the other countries all had much higher inflation in that period, their real GDPs performed much worse than than their nominal GDPs. I dont have the figures to hand, but, just from memory, Spain, Greece and Portugal all recorded falls in real GDP of the order of 3% to 5% between 2007 and 2010, while Germany’s was close to zero. In short, if you use real GDP instead of nominal GDP, the gap between Ireland and the others between 2007 and 2010 is about 8%, rather than the 20% shown in the chart.

(b) They start in 2007, which takes them out of context.

Germany and Portugal had enjoyed virtually zero real GDP growth between the mid 90s and 2007, while Ireland’s real GDP more than doubled. Spain and Greece also enjoyed strong real GDP growth in that period, although not nearly as strong as Ireland.

The IMF are forecasting that real GDP growth in Ireland will move above that of the others sometime in 2012 and stay there until 2016 (at least). If we take GNP instead of GDP, which was the preferred measure for most economists until they flip-flopped following the recent GDP/GNP figures, then real GNP growth in Ireland has allready gone above that of the others, up 4% since Q1 2010 and up 2.8% y-o-y in Q4 2010.

If we want a longer-term perspective, I suggest a chart showing real GDP (or GNP, if preferred) growth between 1986 and 2016, incorporating the IMF forecasts for 2011 on. That would show real GDP (or GNP) growth in Ireland massively outperforming the others for about 85% of that period, and underperforming the others only for a relatively short period from 2007 to 2010/11 or so. Indeed, if we go back further, and cover the half century from 1966, when some of us celebrated the half-centenary of the Easter Rising, to 2016, when some of us will celebrate the centenary of the Easter Rising, it will be found that Ireland’s real GDP (or GNP) growth rate will have been well above the EU and OECD averages for about 40 or those 50 years.

@Brian Lucey,

I’m sure it hasn’t escaped your notice that getting back to where we were in <10 years is a projection. We had the GUBU decade from ’77-’87. This one has been even more spectacular – the GUBU one was quite low on the Richter scale of policy stupidity. This one deserves its own acronym – any thoughts?

@ Philip

How do these predictions factor in unlikely possibles, such as the effects of:

(a) War
(b) Earthquakes
(c) Volcanoes
(d) Other

Are they based on an idea of: ‘if nothing surprising happens’?

@Philip Lane

Dismal. truly dismal.

Lost decade; lost generation; potential path-dependent slide in perpetual catch-up to who knows where …..

…. gotta bust present dynamics somehow ……… somehow …

@grumpy

Need to look at both wings of the kapital-labor relation …. and where they start from ………

Unit Labour Costs in the EuroZone & Unit Capital Costs

http://www.levyinstitute.org/pubs/wp_651.pdf

Study the graphs ………… the tell a real story …. Germany, as always the benchmark …… and if Germyan and French Economic Nationalism continues, then entire European Project in serious jeopardy …. we were doin OK on both fronts until the PD disease infected the body politic …. and ran riot throughout Fianna Fail ……… looks like the present EZ ‘cure’ is a decade of the austerity_rosary and a lost generation in between ……. how do we get off this Socialization or convince others in EU to get ‘real’ on a progressive EU as distinct from a sheep farm for the Globalized Financial Sector ………