On September 18, the INE (National Institute of Statistics) will once again correct the GDP (Gross Domestic Product) growth rates after having underestimated for years the recovery from the extraordinary shock of the pandemic and the subsequent progress of our economy. It will be the fourth upward revision of the National Accounting since 2020 and will confirm the largest statistical error in the history of the institution.
The dimension of this fact goes far beyond what may seem a mere technical issue. The inaccuracies of the INE conditioned the economic narrative of the electoral campaign for the general elections in the summer of 2023, or the progress of the economy after the worst health crisis in a century. They have favored the questioning of progressive policies or have distorted the figures for deficit, debt, tax pressure or pension expenditure, with respect to which the General State Budget (PGE) is constructed or on which the fiscal rules of the European Union (EU) depend and which are always calculated in relation to GDP.
Little by little, upward revision after upward revision (carried out every year in September, apart from other quarterly adjustments), the INE has been assuming its errors in measuring GDP since 2020. Since the end of 2021, experts Francisco Melis and Miguel Artola began to warn of this problem in a series of analyses that have been and continue to be published in elDiario.es. With the same thesis, exactly on December 12, 2021, the director of this newspaper, Ignacio Escolar, published a special report entitled: “The data that refutes pessimism about the economy in Spain.”
Since then, experts and journalists from elDiario.es have pointed out the inconsistencies between the GDP and National Accounting data and other statistical sources, such as the profits registered by companies with the Tax Agency, salaries or hours worked. They even identified “negative fraud” in VAT, meaning that more taxes were paid than were consumed, according to the National Accounting.
During this time, different voices have been joining in. They all acknowledged that the INE was facing “an unprecedented scenario” after the hibernation of activity due to COVID and the subsequent intense rebound, which supported an equally unprecedented public protection of family and business incomes, thanks to the various measures deployed by the coalition government.
The debate on this issue reached the Congress of Deputies in April, at a conference entitled ‘The future of national accounts after the pandemic’ which brought together representatives of some of the main economic institutions (Bank of Spain, AIReF and the INE itself), academics and trade unionists. The representative of Statistics at the session, María Antonia Martínez Luengo, then still director of national accounts at the institution, threw cold water on the matter by stating: “We do not have numerical results yet, but a priori, and perhaps I will regret giving this information, we do not expect the revision of levels to be significant”, referring to the revision scheduled for 18 September.
Martínez Luengo, appointed to that position in 2012 after Gregorio Izquierdo became president. He is currently the director general of the Institute of Economic Studies (the think tank of the CEOE employers’ association), joined the European statistical office, Eurostat, in June as the new director of Macroeconomic Statistics, after a career of almost thirty years at the INE.
This Wednesday, without warning, the agency made its latest adjustment to the National Accounts and admitted a deviation of 32.48 billion euros in the 2021 GDP alone – in total, almost three points more in nominal terms that they had not calculated correctly -, anticipating that there will be a significant update of the GDP growth rates within a couple of weeks and reconfirming the robustness of the Spanish economy in this recent stage. On September 18, more details of all the updates from 2019 to 2023 will be known.
These corrections “are giving a better picture of the post-pandemic recovery in Spain, and obviously mean an automatic improvement in all indicators linked to GDP,” says Ángel Talavera, chief economist for Europe at Oxford Economics. “The fundamental reading we can make of this statistical review by the INE is that the recovery of the Spanish economy after the pandemic was very similar to that of the major economies of the Eurozone (Germany, France or Italy),” says Nacho Álvarez, professor at the UCM and former Secretary of State for Social Rights of the first coalition government.
“The underestimation of GDP has allowed some interested voices in recent years to coin the narrative that our country was the only EU economy in 2023 that had not recovered its pre-pandemic GDP level. But it was evident, according to the rest of the macroeconomic indicators, that this was not the case,” he laments. The Popular Party (PP) has repeatedly stated that Spain was at the tail end of the recovery.
For economist Daniel Fuentes, “the successive revisions of the GDP must be put into context. The impact of the pandemic on economic activity and statistical measurements was unprecedented. It was not only the INE that suffered it, but also anyone who at that time was dedicated to measuring in real time what was happening. It was always a technical debate in which there were well-founded indications. Unfortunately, that debate was contaminated with accusations that defended partial interests,” he believes.
“The revisions carried out by the INE only confirm the hypothesis of a positive structural change in the Spanish economy after the real estate-financial crisis and the pandemic. To the key elements of this change, such as the positive external balance and the rise in employment, it can now be said that the dynamism of the GDP should be added,” observes Ignacio Ezquiaga, analyst at the analysis centres AFI and Funcas.
The INE told elDiario.es: “We are sticking to the documents published on February 26 (information note), April 2 (technical project) and September 4 (information note).” In these documents, they have detailed their calculations, although for many experts, they are insufficient. Luis Zarapuz and Natalia Arias, from the economic cabinet of CCOO, explain that “various agents” have repeatedly asked for an explanation of the differences shown by the various macroeconomic statistics, carrying out a methodological comparison exercise similar to those carried out with the employment or unemployment figures. This exercise of transparency and explanation of the statistical discrepancies has not occurred until now.”
A change of narrative
One of the major statistical problems is that part of this repair was not reflected in GDP until September 2023. Then the INE carried out the most important upward revision of the level of economic activity (especially in 2021) and brought forward the recovery from the COVID shock to the third quarter of 2022, eliminating the comparative pessimism with the rest of the EU. “The revisions of 2021 and 2022, together with the good growth data for 2023, force a change of narrative. Before these revisions, the Spanish economy appeared to be lagging behind the rest of Europe,” reflects Raymond Torres, director of economic situation at Funcas.
“What is emerging now is a favourable competitive positioning: the revisions and the growth pattern for 2023 are due to a contribution from the foreign sector that was greater than what the first INE estimates indicated. From that point of view, the diagnosis not only turned out to be biased downwards, it also underestimated the competitiveness factor. One constant, however, is the sluggishness of investment: a worrying trend that has been confirmed, posing a challenge in the face of potential growth,” explains Torres.
“With what we now know thanks to the INE reviews, the debate should have focused on how to stimulate investment (whose weakness is surprising given the flow of European funds). Instead, what generated controversy (erroneously, according to the revised data) is the capacity of the Spanish economy to rebound,” continues the expert from the analysis centre Funcas.
The reality of the economy has buried the catastrophism of the Spanish right and far right. The recovery from the extraordinary shocks of COVID and inflation has been very different from the slow and tortuous reconstruction that followed the bursting of the real estate bubble in 2008 and the great financial crisis, although official data are taking a while to faithfully reflect this.
Progressive policies to protect the incomes of both families and businesses – with public financing of ERTE (temporary layoff plans) or the increase in the minimum wage (SMI) as the best examples – have produced a completely different result from the austerity of the past decade. The exit from the pandemic has been unprecedented for the economy, and current growth shows signs of positive structural transformations – such as the record pace of job creation, and of higher quality – and surpasses the rest of the eurozone partners.
“Weak growth and deflation followed austerity policies. Therefore, the recovery in an environment in which construction was not acting as a driving force and despite the fact that the recovery of tourism would not be complete until 2023 was actually very relevant. Without a doubt, these are data that, if they had been published at the time, would have reinforced the positive expectations of the Spanish economy,” says Ignacio Ezquiaga.
“It is also important to note that the main correction of GDP through income has been to record an increase in the wage bill, which implies that wages have grown more than initially estimated,” says Nacho Álvarez.
Pension deficit or expenditure
Behind this macroeconomic reality there are also challenges and problems such as improving access to housing, reducing inequality or advancing the ecological transition. But the PP, Vox and numerous economists, analysis centres and media have not stopped questioning it, attacking the measures of the coalition government. The underestimation of GDP by the INE in recent years has laid the foundations for these criticisms, at times fierce and apocalyptic, and which extend to the present.
“The underestimation of GDP growth has been misused in the political debate in our country, but in addition, national accounting data have a real impact on public policies: an underestimated GDP overestimates the levels of deficit, debt, public spending levels… and ends up limiting fiscal policy,” warn Zarapuz and Arias, from CCOO.
“For example, in the area of pensions, National Accounting data serve as the basis for the projections in the reports of the European Commission (‘Ageing Report’) and the AIReF, which are the ones that ultimately determine whether or not additional measures should be implemented to limit ‘excessive pension spending’. Another example: the public deficit data on GDP serves as the basis for the activation of the excessive deficit procedure, from whose reactivation Spain has just escaped in extremis after the pandemic break,” they say.
“In any case, this review should serve to increase the spending ceiling for the next Budget and provide greater fiscal space to implement the public policies necessary to face future challenges and investments, reduce inequalities and strengthen public services,” conclude the CCOO economists.
“The level of nominal GDP is key in the construction of many indicators and ratios, such as public debt or deficit, GDP per capita or productivity growth, which will now have to be reviewed again,” Ezquiaga agrees.
Source: www.eldiario.es
