GDP is always wrong: INE corrects little, late and badly

The news will not have come as a surprise to elDiario.es readers. As we have been publishing for three years, the main indicator of the Spanish economy was bad. The gross domestic product (GDP) was higher than the official statistics say. This Wednesday, the National Institute of Statistics (INE) once again corrects the GDP for 2020, 2021, 2022 and 2023. This is the third time it has done so. The third! Always on the rise. Little by little, a huge gap with the first official data is emerging. Correcting in small steps what was obvious for years was a mistake.

But that’s not the worst part. The worst part is that the new data still doesn’t match.

But let’s start with the correction. In its third assessment, still upwards, the INE added another 77 billion euros to Spain’s GDP. In total, the gap recorded since 2019 on its first figure already exceeds 130 billion euros. This is the largest statistical error in the entire history of the INE and it is a costly one.

As I explained two weeks ago, GDP is the main macroeconomic variable of a country and many other things depend on it: debt, deficit, income per capita, budgetary pressure, productivity…

The INE’s decision has not only had political consequences – that noise from the right saying that Spain is doing badly. Economic ones too: Spain has shown a distorted image on international markets that has disfigured the reality of the country. Something that always proves costly: in risk premium and in the capacity to attract foreign investment.

It has been repeated ad nauseam that Spain was the only country in Europe that had not recovered its pre-pandemic economic level. Today we know that this was not true, that Spain emerged from this crisis at the same pace as the others: a year and a half earlier than the INE certified. And then it grew more than the rest.

It turns out that Spain was never the gateway to Europe, as many have repeated thanks to the erroneous data from the INE. It was quite the opposite: Spain was the locomotive. With the new official data that we have today, it is clear that the Spanish economy has grown in the last five years – under a left-wing government – ​​much more than the rest of the European countries. More than Germany. More than France. More than Italy.

Much of this huge statistical error is easy to excuse. With the lockdown caused by the pandemic, the global economy suffered a brutal contraction, followed later by an explosive recovery. Statistical models were not prepared to measure such an earthquake and the official Spanish statistics were not the only ones to fail in those years. The same thing happened in other European countries.

I do not blame the INE for this first mistake, which is completely understandable. This has happened in many other countries. The most serious thing was the way it was corrected: little, late and badly.

The INE did it wrong: because of the lack of transparency and the arrogance with which its leaders responded to criticism. When the statistician Francisco Melis published one of his first articles on elDiario.es about anomalies in the GDP data, the INE’s response was to call our editorial staff (and that of many other media outlets) to tell them that their data was wrong; questioning its reliability. Today we know who was right.

Less than a year ago, the head of the INE department that prepares the GDP was at the Congress of Deputies. He assured that there would be no substantial revisions to the GDP, which was not true. And today, we still do not know what went wrong or on what data or sources they are now basing their correction. There has been no adequate explanation for this huge discrepancy.

When the UK Office for National Statistics reviewed its GDP data after the pandemic, it offered all citizens a detailed report explaining what had happened. However, the British economic press was extremely critical of this error. And this revision cost “only” 50 billion euros: less than half of the Spanish one. The INE, for its part, only offered this press release to clarify this third balance sheet. Nothing else.

The INE is also behind schedule: because the main review of the gap in the UK and other national accounts was carried out in September last year. In 2022 and 2023, the INE also corrected the pandemic data. Just a little bit. And this year, a little bit more. As if making these changes in small sips would make the error less noticeable.

But the most serious thing about this third revision of the INE is that the data still do not agree.

One of the main signs that something was wrong with GDP was the evolution of employment. It is normal for the two indicators to evolve more or less in tandem: employment grows at a similar rate to the economy. That is how it has always done. Until the pandemic. During which – according to official statistics – this correlation, inexplicably, was broken.

Before this latest GDP revision, this correlation was as follows.

It was obvious that something was wrong with the indicator. Nothing like this had ever happened before: employment grew at a much higher rate than the economy. On other occasions over the years, there had been small discrepancies, but never such a huge gap between the two indicators.

Indirectly, this gap between the GDP data provided by the INE and the number of workers in Spain caused another additional anomaly: a decrease in Spanish productivity. In other words: if we need more people to work to generate the same wealth, this means that each person produces, on average, much less than before.

This is not what is really happening: whenever a country emerges from a crisis, it is normal for productivity to increase, not decrease. No other country in the world has behaved like this after COVID, except Spain. The only realistic explanation was therefore the one that researchers like Francisco Melis and Miguel Artola have been defending for years: the Spanish GDP data were wrong.

Well: this is the new curve after the GDP revision carried out by the INE. The gap is narrowing a little, but there is still a huge gap to fill.

Let’s be clear: we are talking about a possible gap of 5 percentage points of GDP. Even bigger than what has been corrected so far. This is a huge hole that will most likely surface at some point.

But it is not only the employment data that remains unbalanced. The same thing happens with those obtained through tax collection which, contrary to the INE estimates, are based on hard cash that reaches the public budget. How can we explain the discrepancy between the profits that the companies themselves declare to the Corporation Tax and Personal Income Tax and the commercial margins that are deducted from the accounting carried out by the INE? Is it believed that Spanish businessmen have an interest in declaring more profits to the Treasury than they actually have? Do they tip when they pay their taxes? Or is the INE incapable of seeing the information that is in front of it?

Soon, new data from the Tax Agency will be available. And we must expect that what has happened in the last four years will happen again: that the INE’s calculations continue not to correspond to reality. That we continue to live in a statistical impossibility, where the economy generates more jobs and more tax revenues than what appears in the national accounts.

Instead of an underground economy, Spain’s official statistics are overwhelmed.

Source