If the economy expands through a new year by, say, 1% each quarter from the previous Q4 number, the growth rate on an annual basis will be about 4%, right?
Wrong. It depends on the intra-year pattern the year before. If the previous year saw quarterly improvements, with the Q4 figure ahead of the year’s average, a flat performance in the new year will yield apparent year-on-year growth, even though the economy is not expanding.
The seasonally adjusted GDP numbers for 2016 were released on March 9th, also and not coincidentally the data cut-off for the ESRI forecast of year-on-year growth in 2017 of 3.8%. Subsequent forecasts from the Central Bank and the Department of Finance came in at 3.5% and 4.3% respectively.
The sum of seasonally adjusted GDP for the four quarters of 2016, according to the CSO, came to €256.3 billion. But the Q4 number was 26% of the annual total at €66.6 bn. A flat performance from Q4 through each quarter of 2017 would yield an annual growth rate of 4%. So the ESRI projection is consistent with no improvement, indeed a slight decline, from Q4 last year. The CB projection implies a bigger decline, the DoF a tiny increase. All three sets of projections were heralded in the press coverage as signalling continued economic expansion through 2017.
The problem is the so-called ‘carry-over’ effect – Joe Durkan has been on about this for aeons. The CSO has been publishing quarterly macro data for over twenty years. Perhaps it is time for forecasts to be done on the same basis.
For the record, if you expect GDP to grow 1% per quarter from the Q4 2016 base through 2017, the year-on-year growth rate will be 6.6%. If the forecasters feel the Q4 figure was odd, and that there will be a dip for Q1 2017, better to say so.
6 replies on “GDP Carry-over Carry-on”
text from Blind Biddy:
Apologies Colm – I’ve a touch of Vertigo!
BTW, the post of Quarter-Master General of the ICA remains vacant! Any interest?
Isn’t this just the sort of thing that should feature as a leaving cert question?
“Perhaps it is time for forecasts to be done on the same basis.”
Astrology is always the bestest forecaster. And a mathematized version of same must be the very bestest indeed – and if’n it is further enhanced by algorithmitic programming – well, gee whiz for that.
How about our econ chappies simply give up their ‘forecasting’ scams – not just for Lent, but permanently? Who would miss those forecasts? Hardly the Irish kulaks of the EU Soviet. Or is it the case that some unfortunate folk as as addicted to G*Ps as some are addicted to the fags? Or codein phosphate? Or whatever?
It is well within the technological grasp of persons of modest intellectual capacity to determine either, the advance or the retreat, of our economy – after the event. That should suffice. But it won’t. And herein below lies the real economic problem …
“For the record, if you expect GDP to grow 1% per quarter from the Q4 2016 base through 2017, the year-on-year growth rate will be 6.6%.”
The wretched process is actually an exponential function! Now I do not recall any encounter with that little mathematical nastie in my undergrad econ texts. Strange that.
In terms of the worstest of the EMH, Raghuram Rajan who was scathingly attacked by Lawrence of Harvard Summers, returns to comment on the financial mess which he predicted … worth reading … [basically it hasn’t gone away you know!]
… when Raghuram Rajan steps to the podium [Jackson Hole, 2005] the mood suddenly turns icy. At that time the chief economist at the International Monetary Fund, the native Indian warns that unpredictable risks are building up in the financial system and that the banks are not prepared for an emergency. His dry analysis draws spiteful remarks.
“I exaggerate only a bit when I say I felt like an early Christian who had wandered into a convention of half-starved lions”, he recollects.
Soon, however, his prediction turns out to be correct.
http://www.fuw.ch/article/the-fundamental-problems-of-the-financial-crisis-are-still-with-us/
David, thanks for that article. It started well, but eventually he blew it, and rather badly at that. I guess there will be an opportunity to go through some of his comments: later perhaps.
As for our G*P problemo above. Is it the situation that our so-called liberally educated and technologically well endowed technocrats cannot or will not, cease to deploy, a thoroughly useless and frequently discredited – fraudulent even, quantitative measure* of the current state of our economy? But I suppose an exercise in futility is better than no exercise at all? Actually, its a lot worse. But hey! – “Long live the status quo.”
* Do these folks actually know, and understand, how to conduct a reliable quantitative determination method?
Life is inter-disciplinary and most of economics is seriously both ontologically challenged and theoretically ideologically biased [equilibrium, EMH, SGP etc] hence no real surprise that it produces quite an amount of hermeneutically meaningless tautology which is then used to guide policy which … er .. fails to deliver on its supposed objectives for us poor Earthlings which the servants of Power never had any intention of delivering on in the first place.
I don’t agree with all of Rajan but he was spot on re the out of control nature of the financial system wired on dodgy steroids and the very best of Columbian cocaine … and the relapse is accelerating once again aided by near pure oceans of meth-amphetamines …. a few tomahawks here and there and megaloads of bullsh1t.
Suggest an extra bank of turf, a few more drills of spuds, and a spot of poitin distillation for the dark days ahead!
Seven_of_9 is taking me for a trip around the rings of Saturn for the weekend … Oh happy days! Pity about The Prime Directive.