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October 21, 2016

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Japan reviews how to track GDP

JAPAN is eying 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 — in the digital age. 

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

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 policy-making?”

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 toward 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,” 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,” he said.

“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 European Union, 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.

For Japan, the possible culprits behind any mis-measurement include fewer companies and households filling out official surveys — the BOJ used tax returns instead — and missing out on big chunks of the Internet economy.


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