The Ups and Downs of Economic Estimates

12/31/2014 6:00 am EST

Focus: STRATEGIES

Dr. Mike Campbell, at DailyForex.com, highlights how a country's economic growth is estimated for the full year but is subject to revisions as more complete data becomes available, citing the UK and US economic growth rates as examples on both sides of the spectrum.

Common practice in major economies around the world is to publish quarterly estimates of economic output, as the nation’s Gross Domestic Product (GDP). These figures are given as a relative measure showing the percentage by which the economy has grown or contracted in comparison to the previous quarter. Frequently, growth is estimated for the full year, to produce an annualized growth or contraction estimate. The data which supports these figures is only partially available to the authorities when the GDP figure is released and are subject to revisions as more complete data becomes available.

The Coalition government in the UK has made much of the claim that the UK economy is growing faster than any other major (democratic) nation. Initial indications suggested that the UK economy grew by 3% in Q3. However, more complete data showed this estimate to be overly optimistic and it has been trimmed back to 2.6%. The decline is blamed on lower levels of government and business investment than thought and higher imports. The trade imbalance between exports and imports now runs at £27 billion or 6% of the nation’s GDP; a level regarded as unsustainable.

On the other side of the coin, estimates for growth of the World’s largest economy, the USA, have been revised upwards from an annualized rate of 3.9% to 5% (which will put a spanner in David Cameron’s rhetoric as the UK moves towards a general election in May 2015). The improved US data was attributed to better than expected consumer and business spending figures. The 5% GDP value represents the best level of economic growth seen in the USA in 11 years. Consumer spending accounts for about 70% of US output, so growth in this sector is regarded as key.

By Dr. Mike Campbell at DailyForex.com

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