Bogus Macroeconomic data in the Eurozone?

[txitxo]

  Spain's gasoline and diesel consumption is now 20% lower than in 2007. In 2007 there were 180.000 new mortgages per year, now there are only 30.000. In 2007 we were building 760.000 homes/year. Now we are building less than 50.000.

 

  Not surprisingly, the unemployment rate has gone from 8% to almost 27%. However, the official GDP figures for Spain, audited by Eurostat (which depends directly from the European Comission) show that the GDP is about the same as it was in 2007.

 

  The question is for people who know about macroeconomics: How can this be? Even taking into account that inflation has gone up by 13% during this period, is it possible to undergo such a terrible economic contraction and yet keep the GDP floating in the air like Wile. E. Coyote?

 

[giofranchi]

  Spain's gasoline and diesel consumption is now 20% lower than in 2007. In 2007 there were 180.000 new mortgages per year, now there are only 30.000. In 2007 we were building 760.000 homes/year. Now we are building less than 50.000.

 

  Not surprisingly, the unemployment rate has gone from 8% to almost 27%. However, the official GDP figures for Spain, audited by Eurostat (which depends directly from the European Comission) show that the GDP is about the same as it was in 2007.

 

  The question is for people who know about macroeconomics: How can this be? Even taking into account that inflation has gone up by 13% during this period, is it possible to undergo such a terrible economic contraction and yet keep the GDP floating in the air like Wile. E. Coyote?

 

Hi txitxo!

If what you have so obviously pointed out is true for Spain, try to imagine how reliable China’s GDP growth might be!!  ;D ;D ;D

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

 

[returnonmycapital]

Have you factored in the increase in government spending during the time period?

[txitxo]

Have you factored in the increase in government spending during the time period?

 

Government spending is 47.3% of GDP in Spain, and it is now 5% higher than in 2007, which would add 2.4% to GDP.

[PlanMaestro]

Before we start with the conspiracy theories.

 

GDP (Capital, Labor, Productivity)

http://mruniversity.com/courses/development-economics/solow-model-brief-no-math

 

Potential GDP gap

http://en.wikipedia.org/wiki/Potential_GDP

 

What I'm going to say here is completely non-ideological. So much so that it was used by John Taylor, economic advisor to Romney, to attack Obama. Here is his interview with Russ Roberts (austrian) for the Hoover Institution (right wing and what a name) in October.

 

 

So when you say that GDP it's the same than 2007 (that I have not checked) it means that 6 years of labor, capital, and productivity growth have passed and it means that current GDP is 6 years behind potential GDP.

 

Let's say that the potential GDP for Spain increases 3% per year.

 

GDP gap against potential GDP: (1+3%)^6-1 =20%

 

That means that Spain can produce/earn/consume a 20% higher GDP without accelerating inflationary pressures. Instead what Spain is facing is excess capacity (ie: in Italy, facing similar issues, Fiat is operating at 40% capacity) and excess labor (your 25% for Spain) and that means … deflationary pressures.

 

That is a 20% of REAL opportunities wasted PER YEAR and INCREASING. That production/ consumption/ income was LOST FOREVER. And it has nothing to do with inflation.

 

Why markets are not clearing? Well, that's where the ideological discussion takes place. And it's a very long discussion that tends to get biased and stupid so let's leave it at that.

 

[constructive]

When you add up 13% inflation, 2.4% growth in government, and around 5% increase in productivity, it doesn't surprise me that nominal GDP is flat over the last 6 years despite employment declining around 20%.

[txitxo]

  Thanks to all for the help with Macro 101. I am glad to know that the numbers roughly add up...