The devil in the data series
Is growth in China soaring or slowing?
The answer depends on how you calculate growth
THE EXCITED headlines were predictable.
When China reported its GDP for the first three months of the year on April 16th, growth soared to 18.3% compared with a year earlier.
It was China’s fastest growth on record, underlining the strength of its recovery.
Yet it also illustrates the oddities in how GDP is reported.
China’s recovery should be old news.
Since last March, when the country emerged from its covid-19 closures, a wide range of indicators, from metro ridership to export orders, have pointed upwards.
But because the convention in China is to report GDP in year-on-year terms, it is only now that the recovery makes a dramatic appearance in its most-watched data series.
The nearly normal first quarter of 2021 is being compared with the largely locked-down first quarter of 2020.
(If anything, the latest number was slightly below economists’ expectations.)
America and Japan instead focus on growth in quarter-on-quarter annualised terms: what growth would be if the quarter’s pace were maintained for a full year, adjusted for seasonality.
Seen this way, America’s rebound came in the third quarter of 2020, when annualised growth hit a jaw-dropping 33%.
China, by contrast, reported a more modest-sounding rate of 4.9% year-on-year back then.
Both methods have drawbacks, especially in times of extreme volatility.
China’s figures are backwards-looking, reflecting the economy’s horrid state a year ago as much as its relative vigour today.
The American figures, by contrast, exaggerated the economy’s vigour early in the rebound, when the unemployment rate still topped 10%.
Annualised rates can mislead when output suddenly jumps or plunges; they implicitly assume that a one-off event repeats every quarter for a full year.
In annualised terms China’s rebound was even bigger than America’s, with growth of 55% in the second quarter of 2020.
There is a third way, which is to present quarter-on-quarter growth, without annualising it.
This is what most European countries emphasise.
China does in fact publish quarter-on-quarter rates, but never puts them in the spotlight, partly because they are so volatile.
Growth in the first quarter of 2021, for instance, slowed to about 0.6% from 3.2% in the preceding quarter (the latter figure was revised up from 2.6%).
Such a slowdown might cause the government blushes.
But it would still be wise to draw more attention to the quarter-on-quarter data.
They more accurately trace the ups and downs of the economy.
For the rest of 2021, the quarter-on-quarter pace is likely to inch higher, even as the annual rate comes down sharply.
That picture would better match China’s reality.
It is a solid, somewhat bumpy rebound, not a giant one.
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