quinta-feira, 5 de março de 2015
China and India need to make their growth numbers add up
One thing is certain about the global economy: a slowdown is under way. What we do not know is how big the problem is because the official numbers from China and India, the biggest emerging markets, do not add up.
At the National People’s Congress, the annual parliamentary session starting on Thursday in Beijing, China lowered its official growth target to “around 7 per cent” but that number is 2 to 3 percentage points higher than many independent estimates of the current growth rate. Last month, India’s government used a new method to claim its economy would grow 8 per cent this year, reaffirming its boast that it is growing faster than China. Many outsiders doubt India’s claim too.
The problem in both countries is that the official growth number is much higher than the sum of its parts. Economic growth is the total of growth in investment, trade and spending by consumers and government; many investors are doing the maths and finding that those parts do not add up to a 7 per cent pace for China or India. China’s economy is driven mainly by investment, which has slowed sharply. India’s is driven by consumers and consumption of everything from motorbikes to restaurant meals has been falling.
Official data do not tally with what companies are reporting either. In a boom, corporate revenues tend to grow faster than the economy but today revenues are growing at an inflation-adjusted rate of 4.5 per cent in China and 6.4 per cent in India. In China, few sectors (online retail, for example) are growing as fast as 7 per cent. So how could these economies be growing at 7 per cent plus? Many economists accept the official line to avoid antagonising Beijing and New Delhi but investors with real money on the line do not.
Questions about “funny numbers” have dogged China for years. Sceptics say Beijing manages its data to make growth appear both high and steady to prevent social unrest. More likely, the numbers are managed only when China’s growth falls below the official target, which in the recent past has happened twice: in 1998 during the Asian financial crisis; and since mid-2012.
By contrast, India’s latest growth data look less like the work of a calculating political machine than the result of bungling. Delhi recently reformed its data collection to tap broader sources, which made sense. The subsequent data revision was so sloppy, however, that many now question the credibility of the numbers. This is a classic example of how Indian bureaucrats can take something that is not broken and fix it until it is.
The new numbers raise the Indian GDP growth rate for 2013 to 6.9 per cent, from the estimate of 5 per cent and show a further acceleration to 7.4 per cent for last year . It’s hard to see how India’s economy could have been accelerating when the government was restraining its spending, investment was weak and credit was barely growing.
The irony is that, even by independent estimates, India and China are growing at perhaps twice the average of all other emerging countries, which is 2.5 per cent. They are not stagnating, like Brazil, or contracting, like Russia. Delhi has no reason to exaggerate the numbers. By overstating growth, they risk their own credibility.
India’s government would be smart to follow the lead of its central bank, which has repeatedly expressed scepticism about the revised numbers. China would be well advised to follow the lead of Shanghai, the first province to scrap its official growth target.
It is tough to say how fast the world is growing without reliable data for China and India, which together account for more than a third of global GDP growth. That is why investors are churning out guesstimates. For anyone with a real stake in these numbers, it is better to be roughly right than precisely wrong.