The bad news wasn’t as bad as we thought
It’s not only when new economic figures are better than the old that we know we’re past the worst, it’s when the old figures are revised so that they’re not as bad as they were.
Having recounted the UK growth figures the official statisticians now admit the decline in the three months to June was only 0.6 per cent, not the 0.7 per cent originally announced. The revision to US gross domestic product is even more dramatic; the previously stated 1.0 per cent decline for the same quarter now turns out to have been just 0.7 per cent.
And the International Monetary Fund has added $600bn to world wealth at a stroke by changing its mind on how much global banks will lose because of the credit crisis. That’s more than the $437bn of Tier-1 capital raised by European banks during the crisis.
Actual and potential losses by banks on bad debts in the three years to 2010 will now be only £3.4 trillion, according to the IMF’s October 2009 forecast – not the $4 trillion it estimated in April.
So things are not as bad as we were told they were. When the world is heading into recession, revised figures tend to show an even worse picture; when the revisions are in the opposite direction it is a sign that economies are recovering and recovering at a faster than expected rate. The IMF reckons growth in 2010 may now be 3 per cent, not the 2.5 per cent it previously forecast.
The revision to the UK GDP decline may look small, but not only is it in the right direction, it disguises some sizable amendments. The fall in manufacturing output in the quarter has been halved to 1 per cent, for instance; the fall in construction output has been slashed from 2.2 per cent to just 0.8 per cent now the full figures are available.
In corporate terms this suggests fewer businesses defaulting on loans – not only to their banks but to creditors such as suppliers too. It is thus possible the banks will not have to write off as much in bad debt as they expected – suggesting Lloyds and Royal Bank of Scotland may be overpaying for their government asset-protection insurance.
Will corporate profit warnings prove too pessimistic too and be revised down? Unlikely. It seems companies are much better with their initial estimates of losses than official agencies like the IMF and government statistics offices.
