If our “rebasing” (yes that’s the word trending) has become the subject of academic disputes about methodology, then we are not alone.
In the United States of America (U.S.), with mid-term elections looming, the state of the economy is not surprisingly the battleground.
For Barrack Obama, any positive news on the state of the economy is a welcome breather. So what then is the state of the economy?
For a start, there is a riddle about the real state of the country’s Gross Domestic Product (GDP). There are divergent views among practitioners of the dismal science. Economists claim that the drop in GDP is a minor blip.
The contention centres around whether the U.S. economy is cruising on the verge of a spurt of potentially great growth? Or does, on the contrary, a recession loom?
The U.S. economy is supposed to be enjoying robust growth. Unfortunately for the optimists, the economy actually contracted early this year, according to the commerce department. This means that, potentially, there could be a loss equivalent to 10 per cent of economic power, if this position is spread over a year. This is the first major economic contraction since 2011. Ominously, another key measure – Gross Domestic Income (GDI) – also fell sharply after years of growth.
The Guardian of the United Kingdom has highlighted the implication.
“The discussion is a weighty one. GDP, a measure number-crunched by the commerce department every three months, is the economic data point that policy-makers must trust to gauge the health of the U.S. economy. It takes into account everything from goods bought and sold to business investment to trade and export.”
The Guardian went on to hammer home the real immediate political implication. “It is also a political football. The growth of the economy could prove an influential data point in the mid-term U.S. elections this fall, in which the White House will want to show the economy is improving, to get more seats for the democrats. Many democrats and partisan economists, including Paul Krugman, have argued that the batch of austerity measures passed over the past three years by the U.S. Congress would hurt economic growth.”
Many economists are concluding that the GDP has been hit by a short term decline in ventures stocked by businesses during the first three months of the year. Unfortunately, inventories aren’t a total explanation.
The Guardian attributed the decline to a decrease in net exports and the effect of bad weather, both of which may have also played a part. “Enemies of austerity may also note that local government spending also dropped, contributing to that lower economic growth number.” Still intrigued?
With the mid-term elections looming large, the debate will continue to rage. Rage they will, because Obama’s Democrats could very well lose the Senate in November. So there is everything to plan for.
It is not all gloom and doom though. Economists taking a positive look such as Paul Ashworth, Chief Economist at Capital Economics, told The Guardian that the run-down in inventories in the first quarter would lead to the bounce-back in the second quarter, being even bigger because companies would be rebuilding their stocks of goods.
This should be of good cheer to Obama and the democrats, as a new release of figures will be close the mid-term elections.
The figure, for the U.S., has implications worldwide. If the U.S. ships into recession, the implications will be dire for recovery everywhere else. For a negative interpretation of the figures will suggest a ship into recession. This will affect the quantum of our oil exports to the U.S.; this means that there are indications for our mono economy. On the other hand, another report says that Britain’s economic prospects are the brightest in a decade. With consumer optimism on a high, forecasts from the UK finds the UK economy growing at its fastest pace since 2003.
What in Nigeria we have to learn is straight-forward. This is that we must pay close attention to the methodology used in compiling statistics which are then turned into analyses.
From this perspective, the rebasing debate should therefore be more circumspect. Turning these reports into political jockeying points highlights a weakness in the institutions. This, of course, translates into a wobbly polity.
