Spain Falsified Data To Hide Major Gdp Collapse

[_w_]

This is good.

It reminds me of me in 2004 and saying to myself "where's all this money coming from?" while official inflation data was reported at 2%.

http://ftalphaville.ft.com/blog/2010/09/30/356201/an-anonymous-tip-off-regarding-spanish-gdp/

An anonymous tip-off regarding Spanish GDP…

Posted by FT Alphaville on Sep 30 09:30. A highly damaging — and deeply anonymous — piece of analysis started making the rounds on Wednesday. Sent from a specially-created Gmail account, with no named author(s), it explores “discrepancies” within published Spanish GDP figures.

It questions Spain’s official GDP statistics for the period between 2007 and 2009, suggesting the national statistics office may have understated the country’s decline in growth by as much as 14.2 per cent.

We’ve excerpted it below — and while it certainly seems to highlight what appear to be some interesting incongruities — the fact that it’s been published anonymously means it must be treated with kid gloves. Still though, it’s not the kind of thing Spain wants floating around the market this week.

The central premise is that certain indicators and components of Spanish GDP don’t quite stack up with reported national accounts data. To wit, Spanish unemployment rates and GDP ratios:

The reported National Accounts of Spain showed a GDP growth of 0,9% in 2008 and a fall of 3,7% in 2009, thus delivering very reasonable figures compared with other developed economies. However, employment suffered a dismal performance.

As seen, there is a big discrepancy in the Spanish case, in which we should be seeing a much lesser increase in unemployment (following the reported GDP numbers), maybe around 1.5 points (versus the real 9.7 points increase). In all the considered countries the increase in unemployment has been much lesser.

The same goes — apparently — for other countries which have experienced high unemployment (Estonia, Ireland, Latvia, Lithuania, and the like). How to explain Spain’s outperformance?

The anonymous author(s) has an idea.

They look at Spain’s services sector, specifically two statistics, the Market Services Gross Value Added (GVA) and the Indicator of Activity in the Service Sector (IASS/SSAI). Both of these are published by Spain’s official stats body, the Instituto Nacional de Estadística (INE):

Superposing the Market Services Gross Value Added (GVA) with the IASS we see that there’s a very high correlation since the start of the series (2002) until the fourth quarter of 2007, when the curves start to diverge.

In France, the equivalent indicator to the IASS, Évolution de la production des services marchands (prepared following the same methodology), fell only by 1.2% in the two years, while the Market Services GVA (this is, excluding government, health, education and social services) remained stagnant. Thus, a not very relevant discrepancy between both series in France, while in Spain the observed fall in the IASS was a hefty 21%, at the same time, that enigmatically the Market Services GVA increased by 4.5%. We should realize that the GVA of Market Services are 50% of GDP.

Essentially, the IASS should be seen more like a short-term business statistic, such as the PMI, for example –with the key components being turnover and employment The GVA, meanwhile, is the way demand side GDP is measured.

You could say, one measures how many apples some people sell according to a survey, while the other measures how many apples people buy via VAT returns. The incongruity comes in why they tracked so well before, but no longer do.

Another discrepancy appears in construction, the author(s) says:

Lets make the same calculations with the c onstruction output published by Eurostat. The curves don’t fit as tightly in this case, due to the use as deflator for Construction GVA the same number as used for Real Estate Services, which led to a overvaluation of Construction GVA until 2007 ( when construction prices stopped growing faster than in other sectors).

Returning to France, the construction index fell by 12.7% in the two years, while Construction GVA deflated fell by 7%. In Spain the construction index collapsed by 29.4% in the same period, while Construction GVA only fell by 16.7% …

And finally, industry:

Lastly we arrive to the IPI (industrial production index), prepared by Eurostat. Correlation between this indicator and Industry GVA was very good until the start of the recession, when a greater fall in IPI that in Industry GVA (deflated by CPI), was observed, though discrepancies are much lesser in this case.

Industry fell by 24.1% in the two years, as shown by the IPI, while Industry GVA (deflated) fell by 16.7%. In France industry suffered a fall of 16%, while Industry GVA (deflated) fell by 14.5%. As seen, and in comparison to France, we see discrepancies of 5 points…

The big question then, according to the author(s), is the ‘real’ level of Spain’s GDP. Using a deviation of 24 per cent in market services, 5 per cent in manufacturing and 6 per cent in construction, the author comes up with a 17.3 per cent fall in GDP between the fourth quarter of 2007 and Q4 2009 — far less than the published 3.1 per cent. If you use that GDP figure, you appear to get a GDP/unemployment ratio much more in line with other countries that have suffered massive bouts of structural unemployment:

The anonymous author(s) suggests this is a “falsification” by the Spanish government, and one that was done to prevent it from falling into a Greek-like debt trap in the markets. We’ve contacted the INE to discuss.

While we’re still waiting to speak to their economists — since they too were on austerity strike on Wednesday — the initial response of the press office thus far is, that the discrepancies could be due to differences in the way the two data sets are compiled. For example, seasonal adjustments and the use of constant or current currencies.

They also add that the IASS data only looks at private industry, while GVA figures include the public sector. Furthermore, the GVA figures also depend, to a greater degree, on estimates — since they have to account for such things as the grey economy, for example.

But even accounting for the above, economists we at FT Alphaville have spoken with suggest the divergences remain curious.

The greatest of these looks to be in services, especially considering that the sector accounts for some 50 per cent of Spanish GDP. We’ve had a look at the IASS and Market Services GVA and they seem to line up with those in the anonymous tip-off.

Below is a rough chart — using the current prices GDP component:

Raw GVA and services data are here and here, if anyone wants to take a look, and we welcome any thoughts in the comments section below.

More too, as we get it.

[R K]

Ouch!

Is it too early to mention Berlusconi as well?

[_w_]

Ouch!

Is it too early to mention Berlusconi as well?

For a few months now I've been struggling to identify the source of economic growth that lead to these extraordinary GDP numbers. Wherever I look, here, in the US, in Europe (ex Germany) I see things falling apart but here come those magic GDP numbers saying 'all is fine just keep spending'.

It's only last week that I started to wonder whether it is possible that these numbers could just have been 'made up'.

Now I am wondering even more.

[babesagainstmachines]

For a few months now I've been struggling to identify the source of economic growth that lead to these extraordinary GDP numbers. Wherever I look, here, in the US, in Europe (ex Germany) I see things falling apart but here come those magic GDP numbers saying 'all is fine just keep spending'.

It's only last week that I started to wonder whether it is possible that these numbers could just have been 'made up'.

Now I am wondering even more.

It's partially the GDP deflator, which is even worse than CPI for underestimating reality. That and some car plant opening more than half the time.

[Peter Hun]

This is good.

It reminds me of me in 2004 and saying to myself "where's all this money coming from?" while official inflation data was reported at 2%.

http://ftalphaville.ft.com/blog/2010/09/30/356201/an-anonymous-tip-off-regarding-spanish-gdp/

It may be even worse for Spain. Edward Hugh (well know and respected) blogger on Spain noticed that the Spanish youth unemployment figures suddenly - and suspiciously - stopped growing. So unemployment may be higher and GDP even lower.

[dissident junk]

For a few months now I've been struggling to identify the source of economic growth that lead to these extraordinary GDP numbers. Wherever I look, here, in the US, in Europe (ex Germany) I see things falling apart but here come those magic GDP numbers saying 'all is fine just keep spending'.

It's only last week that I started to wonder whether it is possible that these numbers could just have been 'made up'.

Now I am wondering even more.

Interesting. ...

I was wondering about British GDP. I expected it to collapse far more than it did after 08 (I expected a return to 1.1 to 1.2-ish trillion, maybe). So I took a look at the private sector GDP figures ... yep, there was my post credit crunch collapse alright, but this levewl of drop didn't seem to be reflected in official GDP figures.

I presumed QE and deficit spending had kept up the official GDP figures, but now I wonder.

[The Masked Tulip]

Whenever I read about such things I am reminded of The Simpsons episode when Fidel Castro asks Mr. Burns if he can look at his trillion dollar note. When Mr. Burns asks Castro for it back Castro says "What note?"

[interestrateripoff]

You really couldn't make it up, although it would appear that you can.

If this is an accurate analysis then it's no wonder it's been done anonymously one would suspect the authors would have to take up hill walking.

In the current climate no one can be trusted and I'm betting enron style accounting has infected the entire system.

Still it could be worse.

[interestrateripoff]

http://ftalphaville.ft.com/blog/2010/09/30/356201/an-anonymous-tip-off-regarding-spanish-gdp/

Okay, we have removed the original post here because we were taking just too much heat, life’s too short and we’d even started to question the (political) motives of the anonymous source.

Good job W posted the original as the FT have pulled it.

It's contained.

All smoke and mirrors knowing what the truth is will become very hard indeed. Black ops will go into overdrive.

[hilltop]

The Tories are to scrap future National Cencuses, so we will not be troubled by facts about the make-up of our population.

The Office of National Statistics is facing other cuts too, so we will be spared uncomfortable facts.

After all, economic policy only needs the back of an envelope, doesn't it ? And prejudice.

[1929crash]

How much British economic data is already falsified?

I do not believe unemployment is below 2.5 million.

[Guillotine]

The Tories are to scrap future National Cencuses, so we will not be troubled by facts about the make-up of our population.

The Office of National Statistics is facing other cuts too, so we will be spared uncomfortable facts.

After all, economic policy only needs the back of an envelope, doesn't it ? And prejudice.

Yes shame eh, we really should keep tabs on that burgeoning Jedi population.

[DabHand]

These are not the jobs you are looking for..

[Pauly_Boy]

Holy cow, so they suspect that the real fall in GDP is over 17%

I wonder if others have fudged their figures?

[mijas99]

The question I've asked myself since I've been living in Spain the past 3 years, is how can unemployment more than double, from 9% to 20% and there be no social unrest (well, very little).

Having asked around a bit, I think it is because firstly, the government has brought it an emergency bill guarenteeing 450 euros a month for every family in the country (it sounds very little but previously there was no minimum income guarentee).

But more importantly, there is a lot of flexible cash in hand work in Spain. An incredibly large amount of it! There are a lot of family businesses especially in the services sector and they employ friends and family on a casual basis without declaring it.

So could this account for the descrepancy? A large proportion of the unemployed will still be contributing to the economy, but unofficially so.

Edited October 1, 2010 by mijas99

[scottbeard]

How much British economic data is already falsified?

I do not believe unemployment is below 2.5 million.

I don't think much UK data is FALSIFIED as such, it's just oddly defined.

For example, unemployment statistics don't count you unless you claim jobseeker's allowance. If you simply sit idle at home I'd say that's "unemployed" - the stats say no.

Similarly the methodology of replacing old items (like DVDs) with new ones (Blu-ray) in CPI/RPI baskets means that the indices constantly pick up the cheapening of new technology, whilst punters on the street see Blu-Rays that cost now the same as what DVDs did a few years back.

Fudging the stats or just inevitable statistical imperfections? You decide.

[Realistbear]

All the poisons that have been lying in the mud have yet to hatch out.

IMO, the ease by which the Eurozone got rid of their troubles so painlessly has been highly suspicous. Covers ups on a massive scale that are all about to come rolling out like an army of skeletons on night of the living dead.

Its all contained, safe to buy Euros........yeah right.

[LiveAndLetBuy]

The question I've asked myself since I've been living in Spain the past 3 years, is how can unemployment more than double, from 9% to 20% and there be no social unrest (well, very little).

Having asked around a bit, I think it is because firstly, the government has brought it an emergency bill guarenteeing 450 euros a month for every family in the country (it sounds very little but previously there was no minimum income guarentee).

But more importantly, there is a lot of flexible cash in hand work in Spain. An incredibly large amount of it! There are a lot of family businesses especially in the services sector and they employ friends and family on a casual basis without declaring it.

So could this account for the descrepancy? A large proportion of the unemployed will still be contributing to the economy, but unofficially so.

I think the €450 deal might expire after 2 years out of work, but it's still pretty generous.

You have a point about "dinero B" - maybe cash jobs previously held by illegal immigrants have now gone to Spanish workers. But I'm only speculating. The other thing is that the unemployment appears concentrated in Spain's youth, 40% of which is unemployed. It is still difficult to make someone redundant in Spain so the older generations have been able to hold on to existing jobs at the expense of their children. Their children never contributed to GDP so the fact that they now count as "unemployed" reflects people who have been unable to enter the workforce rather than people who have been taken out of it.

[kzb]

What you think it is just Spain ? He He.....

[bogbrush]

The Tories are to scrap future National Cencuses, so we will not be troubled by facts about the make-up of our population.

The Office of National Statistics is facing other cuts too, so we will be spared uncomfortable facts.

After all, economic policy only needs the back of an envelope, doesn't it ? And prejudice.

I bet the Tories have been fiddling Spanish numbers and deceiving Gordon with bad data for the last 10 years.