Murky data fuel doubt over where emerging markets really stand

October 2, 2015

European Economic and Financial Affairs Commissioner Moscovici and IMF Managing Director Lagarde speak as they wait for a group photo of the G20 Finance Ministers and Central Bank Governors in AnkaraIf emerging markets are to lead global economic performance one again as they did in recent years, an important foundation will be to convince as many people as possible that reported growth data are as accurate as they can possibly be.

While skepticism around economic statistics across the globe comes and goes in waves, India and China, among the biggest and fastest-developing economies in the world, continue to publish data that are questioned a bit too often by analysts and investors.

In their case, there is one rather obvious shared problem. China is the most populous nation in the world, followed by India.  Measuring economies of well over one billion people represents a formidable challenge and is one basic reason why many find it hard to to believe the data are accurate, no matter what spin is put on them.

But quality data are crucial for economic decision-making and for investor confidence.

When the U.S. Federal Reserve met earlier this month, China figured high among its key concerns in deciding to take a pass on a first rate hike in a decade — and yet Beijing insists there has been no substantial slowdown at all. Indeed, the fact the Fed placed so much of its emphasis on China as a risk left many concluding that prospects for a rate hike have faded away.

Despite an aggressive flurry of policy easing, including a small currency devaluation, not to mention overt manipulation of its stock market, Chinese officials and statisticians say all is well in the world’s second largest economy, which was growing steadily at the target 7 percent rate in the first half. Just last week, China’s National Bureau of Statistics repeated that economic growth is largely stable.

To make matters even more murky, as of next month, one of the earliest indications of China’s manufacturing sector published by Caixin/Markit, which has been suggesting the economy isn’t so stable, will be discontinued, leaving investors with fewer data points to digest.

At a glance, the official growth and inflation data on China and India right now are strikingly similar. Both have very low inflation rates by historic standards, economies growing at a still-robust 7 percent but with central banks that are aggressively easing policy.

Indian inflation fell to just 3.66 percent in August, the lowest on record. Such a low inflation rate — which is partly down to weak global commodity prices — could be much more easily explained if the economy’s growth rate wasn’t so high.

Eight months ago, India’s statisticians changed the way they calculate GDP, suddenly adding around 2 percentage points to growth. The official line is the new calculation is more closely aligned to global standards. But there’s not much of a line to rely on yet in the chart.

India vs China

India’s central bank just delivered a hefty half-point rate cut this week that was double the size economists and the markets expected — not usually a sign that all is well.

Indeed, at the last round, economists in Reuters polls were in a quandary over how to forecast India GDP growth. The 2.6 percentage point range between the highest and lowest guesses was among the widest ever.

Back in April, the Reserve Bank of India released a paper which had this to say about the new data series:

The divergence between the new series and the old series in the pace of growth of the manufacturing sector has turned out to be stark; in particular, the robust expansion of manufacturing portrayed in the new series is not validated by subdued corporate sector performance in Q3 and still weak industrial production.

Indian officials talked up economic stability before the Fed’s decision earlier this month, but there is recognition that some work still needs to be done to steady the economy.

For many investors at least, work still needs to be done on the statistics that measure it. 


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