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The Outrageously Inaccurate Estimate Of Last Year’s GDP Growth And Its Consequences

According to the first annual estimate of the Statistical Office of the Republic of Slovenia, Slovenia’s gross domestic product grew by 2.5% in real terms last year, while the previous estimate, based on the aggregation of quarterly data, was 5.4%. Last year’s growth was thus significantly lower than the initial estimate and also much slower than the post-crisis 8.2% growth in 2021. Slovenia is doing much worse economically under the Golob government than under the previous Janša government!

After an unprecedented downgrading of the gross domestic product (GDP), we have been informed that the basic starting points for macroeconomic and fiscal policymaking are also changing significantly. All of this will have an impact on the national budget and, most likely, on additional taxes.

An unprecedented correction

Last week, the Statistical Office of the Republic of Slovenia (SURS) made a significant change to the figure for the level and growth of GDP in 2022. Whereas the previous estimate was €58,989 million, the Statistical Office’s revision now shows a €1,951 million decrease to €57,038 million. In other words: almost €2,000 million (two billion) have basically disappeared.

The GDP revision has been met with great public bewilderment. This has never happened before in Slovenia, but it did happen in Greece before it fell into a major debt crisis a few years ago, when the left was leading the government. The Strategic Council on Macroeconomic Issues and the Fiscal Council have also expressed their astonishment at such a large downward revision of GDP growth. Janez Janša, the previous Prime Minister, took to social media to ask the government, the Statistical Office, and the Bank of Slovenia how this was possible and what impact it would have on budgetary planning.

Similar questions were sent to several addresses by the editorial team of the Demokracija (Democracy) magazine. Most of the institutions, including the Bank of Slovenia, referred us to the Ministry of Finance as the most competent institution to comment on how this will affect future financial planning. However, we were told by the Ministry of Finance that “The Statistical Office, as an independent and competent authority, has explained why the differences have occurred. The revised statistical indicator (GDP) means the revised values as a percentage of GDP for 2022, which is the baseline for future years. However, the change in the GDP growth estimate does not affect Slovenia’s commitment to progressively balance public finances over the medium term.”

The Statistical Office Is Being Unclear

After the downgrade of GDP growth was announced, the Statistical Office explained that the difference between the economic growth figures was due to a regular revision. These are required by international recommendations and European legislation. They cited the EU Regulation 549/2013 of the European Parliament and of the Council on the European System of National and Regional Accounts, the manual for the revision of national accounts data (ESA 2010).

They argued that “the revision of GDP data is by definition not an error, but an improved ex-ante estimate based on additional data sources.” They added that GDP data are regularly revised with updated data sources and methods in line with the current and internationally harmonised revision policy, so that GDP data in the European Union countries for a given year are subject to regular revisions for several years in a row. “The magnitudes of changes in the data after a few years compared to the initial releases are, on average, comparable with other countries. However, in the Slovenian case, the biggest difference is usually between the first estimate based on quarterly accounts and the first estimate based on annual data sources, i.e., already half a year after the quarterly estimate, while in many other countries, the transition to a revised estimate is usually gradual and takes several years,” the Statistical Office told Demokracija.

Have they made another “mistake”?

They went on to explain that “major revisions of first estimates of economic growth can occur in years of abnormal economic conditions (e.g., the first estimate of economic growth for 2020, a year heavily affected by the Covid-19 pandemic, was revised by 1.3 percentage points),” they wrote. But the actual data show that this is not the case. The revision in 2020, and in general, the revisions in the years 2019 to 2021, were only 0.1% each year. Was the Statistical Office wrong here, too, or did they perhaps simply lie about it? Namely, they have told us something that contradicts their own publicly accessible data.

Excuses from those responsible

For 2022, they wrote that “the first estimate of economic growth for 2022 in February 2023 was made by aggregating quarterly data on the basis of the data sources available at that time, and the revision also took into account the annual data sources obtained subsequently, which are more complete and detailed than the data sources for the quarterly estimates.” “The year 2022 was also characterised by abnormal economic conditions, which led to a revision of the economic growth estimate that was larger than in previous years. This was driven by a situation of higher price dynamics for producers and consumption and its unevenness across product groups. 2022 was also unusual in terms of high energy costs for businesses (the impact of the war in Ukraine and the energy crisis). In the first GDP estimate (February 2023), we did not have data on how businesses were managing these costs or what government support they were entitled to. The GDP estimate (published on the 31st of August) is based on more complete data sources, which also included actual energy costs, expenditure and incentives,” the Statistical Office further explained. They added that while releasing the data as quickly as possible is very important from the point of view of user needs, it also comes with a slightly higher risk in the first estimates or in the revision of the data when additional sources are obtained, which bring more reliability to the estimates. The latter is true, but this has also been the case in previous years, with only a 0.1% variation in GDP growth data.

And how will this affect future budget planning? We were told by the Statistical Office that the Ministry of Finance is the competent institution for this question.

The Institute of Macroeconomic Analysis and Development: There has never been such a big change

We also sought answers from the Institute of Macroeconomic Analysis and Development (UMAR). They started by explaining that the Institute is not involved in the compilation of GDP growth data, but that this is the responsibility of the Statistical Office. They added that the publication of annual data always brings a change in the calculation (compared to the February publication based on quarterly data), due to the larger coverage of the data, but that such a large change has not been seen before, and that it surprised them. “Meanwhile, last year, the quarter-on-quarter GDP growth data surprised us on the upside, especially in the private consumption and construction segments,” the Institute reported, adding, “In certain aggregates, lower growth was therefore expected to some extent in the Statistical Office’s annual data release, especially after the release of the Agency of the Republic of Slovenia for Public Legal Records and Related Services (AJPES) data on the performance of corporations in 2022, but by no means to this extent. This has also led to some substantive changes in the interpretation of past economic developments, particularly in the areas mentioned. The Institute is preparing its regular autumn forecast, which is expected to be published in mid-September.” Regarding budget planning, the Institute also referred us to the Ministry of Finance, which is responsible for this.

The Bank of Slovenia does not have an opinion on the matter

While the Statistical Office tried to explain the reasons and went astray in the process, and the Institute of Macroeconomic Analysis and Development revealed that there had never been such a big change in the estimated GDP growth in Slovenia, the Bank of Slovenia did not even have an opinion on the matter. When we asked them how they commented on this and how it would affect future planning, they replied that while they were grateful for the questions, “they suggest that we take them up with the Ministry of Finance.” This is an unusual answer, to say the least, as the Bank of Slovenia is the central financial institution and, as such, has a great deal of responsibility for developments in the Slovenian economic and financial sphere.

Masten: The result of inaccuracy

“Obviously, there has been an unusually large error or audit, and this unusually large error is both in time and in space,” economist Dr Igor Masten told Nova24TV, referring primarily to the “unusually large error” compared to audits in other countries that have also survived the epidemic. According to him, the large discrepancy is due to inaccuracies in the way inflation is taken into account or underestimated, and to an allegedly inaccurate methodology, although, he argues, “this is a matter for Eurostat itself.” “Such large revisions are really unusual, because it causes extreme problems for the work of many institutions such as the Institute of Macroeconomic Analysis and Development and the Bank of Slovenia, which use information such as this for their subsequent forecasts. We are talking about the preparation of assumptions of the budget in particular,” said Masten, who believes that the case has no political background. He also believes that this is not the last audit, but in his opinion, this is primarily a methodological problem, so now they have to check everything again.

Burger: This is the result of big price hikes

Economist Dr Anže Burger says that the deviation was precisely due to incomplete data, but that it is also a consequence of large jumps in consumer prices and price changes in general from 2021 onwards. “It is important that we now have a clear picture that inflation is causing high costs not only for consumers but also for economic policymakers, because if politicians and the public sector have such wrong information, more than double overestimated data on economic growth, this can be a problem for fiscal and social policy,” Burger explained to Nova24TV.

Grims: Tough times are coming

“It is interesting to see how the media portray a development catastrophe as a ‘mistake’ when there is a left government in charge. This means that all the calculations on which the Golob government’s waste of taxpayers’ money is based were wrong. Hard times are coming, inflation, higher taxes. A fiasco,” the Slovenian Democratic Party (Slovenska demokratska stranka – SDS) MP Branko Grims responded to the alleged miscalculation.

Dr Janez Šušteršič: the Statistical Office’s explanations are very scarce, the picture of the current situation will worsen

We also asked the former Minister of Finance, Dr Janez Šušteršič, for his opinion on the matter. “Every year in August, the Statistical Office publishes a revision of the first estimate of GDP for the previous year, which it publishes in February, based on quarterly data. I don’t know why the revision is so high this year, because their explanations in the publication are also very scarce. In any case, this will have an impact on the estimates of economic growth going forward and thus also on the estimates of tax revenues. In addition, the picture of the current situation will worsen (the deficit and debt-to-GDP ratios will be higher because GDP is lower). For the Ministry of Finance, this will put pressure on more restrictive budget expenditure and deficit planning. How much it will be able to do in light of the government’s ambitious plans for additional spending on new measures in healthcare, long-term care, public sector wages, etc., remains to be seen. Not very much, I’m afraid.”

Janez Janša: “I remember such big deviations from the Greek debt crisis”

Janez Janša: “The large deviations in last year’s GDP are unusual. I remember them from the Greek debt crisis, which is why Brussels is particularly attentive to this difference. But it is probably due to the fact that last year, because of some unwise moves by the government, a large part of the Slovenian economy paid a much higher price for electricity, or energy in general, than some others. I cannot imagine this difference, which amounts to almost €2 billion, in any other way. With a €2 billion lower base now, budget planning for the coming years will be extremely difficult, and with the economy cooling down, that will be especially true. It is therefore imperative that the government starts saving money wherever it can.”

This is how Janša commented on the GDP reduction on a recent episode of the show Odmevi (Echoes) on TV Slovenia, hosted by Luka Svetina. Janša added that he has been worried about the cooling economy in Slovenia for some time now.

Vida Kocjan

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