Prime Minister Shinzo Abe has ordered a review of the way the government’s economic data are compiled, in response to widening claims within his administration that some of the data, in particular the gross domestic product, do not accurately represent real economic conditions. GDP figures can vary depending on what samples you choose and what standards are used to calculate the data. The method of collecting the data should be aligned with changes in socio-economic structures to give a more up-to-date picture of the economy, since data out of sync with such changes could lead to misguided policy steps. The review process, however, must be independent of any consideration by those in power to make the economy look better than it is.
Behind the move is indeed frustration within the administration and the ruling Liberal Democratic Party over the fact that the GDP data continue to point to uneven and fragile growth after more than three years of Abe’s signature economic revival plans. In September, the Cabinet Office and the Internal Affairs and Communications Ministry separately launched studies into a possible review of the methods for compiling economic data, while meanwhile the LDP also set up a project team on the issue. During a meeting of the government’s Council on Economic and Fiscal Policy late last month, Abe ordered his Cabinet ministers in charge of economic matters to work with the Bank of Japan to put together a basic policy on the matter by the end of the year.
The BOJ drew public attention to the issue in July when its officials released an informal estimate that the economy in fiscal 2014 grew by 2.4 percent, while GDP data announced quarterly by the Cabinet Office showed it had contracted 0.9 percent in real terms. The Cabinet Office calculates GDP by compiling output, capital investment and personal consumption data based on standards set by the United Nations and employed in many other countries. The BOJ estimate calculated the size of the economy based on residential and corporate tax payment data — which it says will give a more precise picture because it covers broader ground — and put nominal GDP for fiscal 2014 at ¥519 trillion, or about ¥30 trillion more than the Cabinet Office figure.
Although the BOJ estimate was not presented as the bank’s official position, it echoed a separate statement by Gov. Haruhiko Kuroda that it is odd the GDP data remains well below the government’s forecast even though tax revenue is increasing much higher than predicted. In August, regional revitalization minister Kozo Yamamoto remarked that “you won’t know how much you can trust Japan’s GDP statistics.” These remarks appear to reflect the administration’s frustration that government statistics do not sufficiently mirror the achievements of Abenomics.
Such charges aside, it has often been pointed out that surveys on household income and spending that are used to calculate personal consumption — which accounts for 60 percent of Japan’s GDP — rely too heavily on samples from elderly households and those with full-time housewives, thereby failing to grasp the spending patterns of the growing ranks of single-member households, and that new forms of services and consumption such as online shopping are not accurately reflected. Also, GDP tends to fluctuate wildly between preliminary data and updated figures released a month later because they use different sets of statistics, possibly leading to confused assessments of the state of the economy. For the July-September quarter of 2015, for example, the 0.8 percent contraction in GDP in the preliminary figures was later revised to 1.0 percent growth.
The GDP statistics are in fact set to be updated beginning with the revised data for July-September of this year, due to be released in December, to reflect changes in international standards that will include research and development spending by businesses and universities — which has so far not been counted in the GDP — as part of research investments. The Cabinet Office estimates that this and other additions will push up Japan’s 2011 nominal GDP by ¥19.8 trillion, or 4.2 percent, to ¥491.4 trillion. With the introduction of the new calculation method, the nation’s GDP data for the past 22 years will be updated.
Updating the method of calculating GDP data to reflect the changing economic structures and practices will provide a more accurate picture of the economy and help the government take policy steps more relevant to current conditions. Efforts toward greater precision in collecting and analyzing the data will be crucial. What’s also important will be to ensure political neutrality in reviewing the calculation standards and collection of samples so the review won’t be seen as an attempt by the government to claim that its policies are working to improve the economy. Credibility of government statistics would be in doubt if the calculation methods are altered for the sheer convenience of the administration in power.
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