Thought for the day

WARNING: Don't Trust Official GDP Data

Depending of data selection, over 80% of GDP data may
be unusable for investment purposes

Last updated: 7 July 2024
Organisations of many kinds use GDP data. Governments, Non Governmental Organisations, Civil Societies, Businesses and a thousand others trust "official" economic data and use it as if it were holy writ. Highly regarded companies like global consultants McKinsey produce lists of the fastest growing countries to admire and perhaps invest in. Government aid is distributed, product plans put together, and factories built using such data as authoritative ammunition.

Yet few bother to inquire whether the GDP data used is of reasonable quality. In reality a great deal of GDP data is of such poor quality it should never be used to site an ice cream stall let alone be part of an elaborate business plan.

Data Quality Ratings
World Economics

World economics has spent many years studying the problems associated with GDP and population data. We have found many fault lines. Data is often out of date. Giant areas of economic activity not included. Half newly born children not registered. Statistics offices underfunded and unable to run good quality surveys. Data spoiled by politicians trying to gain an edge. Data simply not published to avoid political fallout. And so on.

We have carefully reviewed country GDP data and given excellent data produced to the highest standards an A grade. Good enough data a B grade. Average quality data a C. Poor data to be used only with the greatest caution a D. And entirely unusable data a E.

In the McKinsey list of "Outperfomers : high growth emerging economies that had achieved rapid sustained growth over 20 years" we found that 8 out of the 9 countries we had studied had D - E grade data. Clearly grading of this kind is not an exact science. So criticism of companies that produce lists of high growth countries must be somewhat muted.

However, how many of us would trust data with seriously out of date Base years, or that came from a country with a high Corruption rating, or that had very limited statistical resources?

The Table above shows Compound Annual Growth Rates for a selection of the fastest growing 12 countries in our database, ranked on 10-year CAGR's. As can be seen that 58% of the countries have data ranked as grade D or E = poor/very poor. Another 25% are ranked C grade. So no less than 83% of the apparently fastest growing countries are ranked as fastest growing on the basis of data that, at very least, is highly imperfect. And effectively, not to be trusted...

It's at very least good to review data quality before deciding that a country is a GDP "outperformer". It's more than likely if it's an emerging market, that the data is just not good enough as a basis for serious decisions...  See more on Data Quality...

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