The surprise in the already well known 2011 GDP figure

Activity expanded by 2.5% in 2011, confirming what the Romanian president made public a month ago. I still wonder what is the point of Romanian Statistics Institute as Mr President has made it a habit of “front-running” it when it comes to positive news. This is also an important distinction as only the positive news get the “early release”. But I digress. Today should be about the GDP release not about the politics around it.

Here briefly are the details. The 4Q11 contracted by 0.2% surprising on the downside. The main surprise is that contraction came to early, as most expected contraction in 1Q12. The other surprise is relative to other European countries which for the most part reported surprises on the upside.

In my view in the absence of pro-growth fiscal and monetary policies 2012 will be another year of stagnation. I do not venture to say recession yet but the dividing line is very thin. The readers of this blog know that in my view those pro-growth policies are: significantly lower income and profit taxes, lower social contribution tax, a functioning interbank market at maturities up to one year and a flexible exchange rate.

There is also another conclusion: austerity does not work during crisis. I said this many times before and I will keep saying it. We see this in Greece, Portugal, Spain, Italy and Romania. Unfortunately for Romania the austerity is not seen in lower public debt or lower overall expenditures. In Romania austerity took the form of higher taxes which are always and everywhere contractionary.


8 thoughts on “The surprise in the already well known 2011 GDP figure

  1. Florin, at my previous question regarding Q4 export stagnation you leaned towards it being an outlier. With the newly reported Q4 GDP data, do you see a change in trend or is it still to early to call?

    Do you see any issue with GDP adjustment based on seasonal effects? I am thinking that adjustment was based on past years with mediocre agricultural results; adjusting REAL Q4 versus Q3 2011 results based on past year performance can it not result in slightly distorted GDP results?

    1. @I-conomics
      To be honest I was very surprised by the 4th quarter data especially since the government spent 1% of GDP only in December. My expectation was that 1Q2012 would be bad now I am upgrading that view to pretty bad. To keep the economy on the positive side in 2012 we need a miracle, yet again. I am betting on fiscal stimulus, i.e. government spending, to help the economy. But for me the main worry is not 2012, which is an election year but 2013 when we will pay for the election year.
      There were some good news from EU 27. The main engines were still ok in 4q11 although the 2012 still looks bleak.
      Finally, the countries with bad 4q11 are all under the IMF program and that is an interesting correlation.

      All in all, we look at a period 2009-2013 with average yearly growth in the best case scenario at zero. This is below the average yearly growth 1% for the period 1990-2011. So, we go from bad to worse for the long term potential unless we redesign the entire economic system.

      1. @Florin
        What happens if we take away the GDP growth difference in agriculture?

        new 2011 GDP = 2011 GDP – (2011 agriculture GDP – 2010 agriculture GDP)

        In this way we can better measure the growth created by the real economy regardless of the weather. That’s because we don’t know if 2012 will be a good year for the agriculture or not. If it will be a bad year, it will pull down the entire GDP with it.

        I’m sure some of the growth in agriculture was due to technological advances but let’s ignore it for the moment. The 20%+ in agriculture was mostly determined by the good climate.

      2. @Adrian
        Well, I always take out outliers when I do forecasting. I do not discount agriculture entirely but I use a historical average, few years.
        The major fallacy or risk is to use 2011 as a forecasting base for future economic performance or budget planning. If you remember this is what happened in 2009 when all plans were based on 2008 and ignoring the reality.

      3. @Florin
        “If you remember this is what happened in 2009 when all plans were based on 2008 and ignoring the reality.”
        Politicians seem to live in the paradigm: “Let’s forecast the future and then make a plan. Once we have a plan, we only need to worry about implementing the plan perfectly.”

        A better way is to optimize based on reality and then act step by step in iterations based on what you see and not based on projections. In this way, the strategy will be much closer to reality and things will improve gradually and slowly over time.

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