Statistics are backward-looking
Statistics have to be recognised for what they are – backward-looking, not predictive – which is one main reason why all types of statistics, at the level of the firm or the country have to be as up-to-date as can be. Unless we know what has happened recently, and possibly what is happening now, we cannot arrive at decisions about what to do moving forward.
Having up-to-date statistics is, of course, not enough. They have to be correct, as otherwise they would certainly mislead analysts and decision-makers alike. Which is why one can generally accept that the management accounts of a firm, combining sound book-keeping with a good IT system, are reasonably and factually correct, even if produced within two weeks from the end of the previous period.
The same assumption cannot be made when it comes to national statistics. Much of the data used in producing them for reasonably early reporting is, to a considerable extent, based on estimates – and so are provisional, to be updated when final data comes through the system.
In Malta’s case, I believe that accounting at the level of the firm has made a great leap forward in recent years. That is due to a combination of factors – the growth of well-qualified accountants, the development of strong accounting and auditing firms, and recognition by directors and management teams that they must have their data served hot if they are to fulfil their functions properly. Reporting requirements by various government departments have also served as a spur to good, almost just-in-time accounting.
Malta has made great strides at national level as well. Since the Central Bank was set up it has built an impressive gathering and analysis of monetary statistics. With increased expertise it has ventured into other macro areas with significant success. The National Statistics Office too has been restructured over the years. Nowadays it issues a stream of macro-economic data which, though inevitably looking at the past, serve as a good basis for analysis and identifying areas for policy action.
Collaboration with Eurostat has improved both the range and depth of the NSO’s efforts. One area which I feel is still lacking is that of social statistics. Regular surveys, though inevitably not as timely as one would like them to be, do produce strokes with which to make an outline of the social picture. Yet more needs to be done, especially in the area of income distribution, concentration of wealth and such like. I’m sure the NSO will get there. The sooner it does it, in conjunction with the tax departments, the better for social policy formulation.
In this positive context, therefore two recent comments about the quality of the national statistics were surprising. The Governor of the Central Bank, a professor of economics and no slouch in the statistics field, queried the inventory part of the latest Gross Domestic Product data. He said it was “fuzzy”. Whatever one feels that means, the Governor was not being complimentary. He also said that the Bank’s own resources were doing some research on that area.
His words clearly miffed the National Statistics Office. But, coming from someone of Josef Bonnici’s stature, they cannot be ignored.
More surprising were the comments made by the Minister of Finance. Tonio Fenech threw doubt on whether the official statistics gave a true picture when indicating that Malta had once again moved into shallow recession in the January-March quarter.
He pointed out that various sectors of the economy were doing well, and again attributed the economic slowdown to two sectors: exports of electronic parts and the fact that Enemalta is not charging full recovery tariffs. Both observations raise questions.
The microchips exporting company is lauded when it increases exports. It cannot be batted away when market forces cause a reduction.
As for Enemalta the implication is that high energy and utility prices boost GDP growth. There is a fallacy there somewhere, especially if the minister was thinking in real terms.
What the Finance Minister meant to say was that one should look at the economic picture by segmenting it. That throws up the sectors that are doing well, and others that perform not so well.
Point is, though, that is always the case. Rather than try to wave away negative data while blowing trumpets when the overall data is positive, one should explain objectively what is taking place. More important still, one should interpret the data to work out what policy changes may be needed, to the extent that pluses or minuses can be influenced from the Malta end.
We have progressed in statistics gathering and analysis. No one should warp continuing progress with fuzzy thinking.