MODERN ECONOMIC statistics are best thought of as a work in progress. As new information becomes available to national statistics offices they update and revise previously published numbers. The picture of the economy comes into focus only slowly, more like an old-fashioned polaroid than a snap on a modern smartphone. Revisions of older data are part and parcel of the process and rarely make the headlines. But in the past two months revisions in Britain and Italy have come close to rewriting recent economic history. What happened?
Data published in Britain during 2022 and early 2023 had depicted the country as the only G7 economy that by the end of 2021 had still not recovered its pre-pandemic output levels. But after revisions to the 2020 and 2021 figures, in September GDP was found to be 0.6% above its pre-covid size rather than 1.2% below it. The Office for National Statistics added almost 2% to its estimate of national income and transformed Britain’s economic performance from that of a global laggard to something more respectable. Also in September Italy’s statistics office upgraded its estimate of growth in 2021, at current prices, from 7% to 8.3%. That was not enough to offer the government the room it hoped for to justify tax cuts, but was still a significant revision.
In both countries the absolute size of the revisions is partially explained by the magnitude of the swings in GDP in nearly all economies in 2020 and 2021. The lockdowns of 2020 caused output to plummet at a pace not seen in decades and the unwinding of restrictions in 2021 prompted a strong bounce-back in most places. Proportionally normal revisions to large swings in GDP add up to big numbers.
These revisions are driven by what the statisticians call input-output tables (IOT). The initial estimates are based on partial data and on headline revenue figures reported by companies. As more detailed data become available, statisticians are able to use IOT to measure the inputs and outputs of each sector more minutely. That allows them to get a better look at how profit margins evolved over time. Margins, it is now thought, held up better than once believed, leading to higher estimates of profits, income and hence total GDP.
Over the coming months more rich countries will be able to update their data in light of better information. More revisions will follow. Changes of 1-2% in the estimated level of national output can grab the headlines, but the fundamental economic picture remains unchanged. The broad story is that 2020, though still dreadful, was not quite as economically disastrous as once thought and the recovery in 2021 was a touch stronger than it first seemed. ■