GDP UPDATE
January 2015
McIlvaine Company
TABLE OF
CONTENTS
Cheap
gasoline. More jobs. Rising confidence. Everything’s coming up roses for U.S.
consumers, whose spending fueled the strongest growth since 2003. The gross
domestic product grew at an annual rate of 5.0% in the July-September quarter,
according to the third estimate of growth, released recently by the Bureau of
Economic Analysis.
The GDP
report and other economic data led economists to raise their estimates for the
end of 2014 and 2015. “The clear strengthening in activity towards the end of
2014 may prompt some Fed officials to consider whether they need to raise rates
before the middle of 2015,” Paul Dales, a senior U.S. economist for Capital
Economics, wrote in a client note.
Bloomberg’s Consumer Comfort Index, a weekly pulse-taking, hit its highest level
since before the 2007-09 recession in the second week of December. In the GDP
report, the pace of consumption growth was revised upward a full percentage
point, to 3.2%. In a separate report, the government said inflation-adjusted
personal spending rose faster than expected in November, pointing toward the
possibility that consumption spending could rise even faster in the fourth
quarter—possibly 4% annualized, Dales wrote. (Economists’ revised estimates for
fourth-quarter GDP growth are in the range of 3.0%.)
The news
today wasn’t all good, though. While business investment was strong in the third
quarter, another report issued on the decline in business orders for durable
goods in November indicated that businesses aren’t as enthusiastic as consumers
are. “Today’s U.S. reports exacerbated the dichotomy between improving consumer
prospects but a downgraded factory and mining outlook in the face of plunging
oil prices,” Action Economics wrote in an analysis of the data.
Consumers’
good mood wasn’t reflected in the real estate market, in which sales of new
homes dropped by 1.6% in November from October, possibly affected by harsh
weather for house shopping. That followed a report of a 6.1% monthly decline in
existing home sales in November.
The plunge
in oil prices reduces the amount of money Americans spend on gasoline, which by
itself is a negative for the GDP. But consumers aren’t putting their gas savings
in the bank. The savings rate, rather than rising, dipped to 4.7% in the third
quarter, from 5.1% in the second. The money that would have been spent on
gasoline was apparently spent on other things, buoying personal consumption.
In a bid
to regain investors’ trust, the Brazilian government revised down its forecast
of GDP growth for 2015 from 2 to 0.8%, a figure that is more in line with market
analysts’ forecasts.
According
to the bill that the Brazilian government sent to Congress, economic growth will
pick up only in 2016, when GDP is expected to grow 2% and then 2.3% in 2017.
Economists
expect the Brazilian economy to grow just 0.2% this year after entering
recession in the first half of 2014.
Analysts
agreed yesterday that the revision responds to the government’s aim to bolster
its fiscal credibility by using more moderate economic growth estimates to set
future savings goals. A weekly survey of economists carried out by the Central
Bank showed that experts believe the economy will grow 0.77% next year.
Local
media praised the use of more “realistic” figures to craft the 2015 budget. The
government’s estimates regarding GDP growth had been too optimistic in past few
years, resulting in inflated budgets. Because expected results weren’t achieved
and spending wasn’t cut accordingly, it led to deficits in Brazil’s external
accounts.
The
country posted a current account deficit of US$8.131 billion in October, the
largest-ever for that month, Central Bank data showed last week. The Central
Bank expects a current account deficit of US$8 billion in November, its head of
research, Tulio Maciel, told reporters in Brasilia.
Brazilian
media said yesterday that incoming Finance Minister Joaquim Levy — reputed as a
fiscal hawk — pushed for the use of private economists’ estimates, in a major
shift for an administration that had previously adopted rosy forecasts to
calculate fiscal targets.
“These are
not magic numbers that we just pulled out of a hat,” a Brazilian official, who
requested anonymity to speak freely, told Reuters. “These are numbers from the
market to show everyone that we are working with credible goals.”
Levy will
likely take office next week once the dust settles on Rousseff’s battle to
loosen this year’s budget targets, another senior government official said
earlier yesterday.
In a
heated 17-hour joint session, Congress approved the text of a bill that frees
the administration from its elusive fiscal savings goal, but it lacked quorum in
the early hours of yesterday to decide on a final amendment that will be put to
a vote next week.
Following
her narrow re-election victory in October, Rousseff vowed to streamline
government spending to regain investor confidence after years of erratic and
interventionist economic policies. Levy, her pick to head her economic team, has
called for more fiscal discipline and credible debt-reduction goals.
Alfonso
Morre has spent nine years studying mechanics and civil engineering in order to
become — a Havana taxi driver. Following President Barack Obama’s decision to
ease the embargo on Cuba, he is hoping for something better.
Driving a
26-year-old Russian-made Lada through the cobbled streets of Cuba’s capital,
Morre says he needs his engineering degree just to keep the car on the road.
That may be about to change.
“Hopefully, once the U.S. trade opens up, companies will come here looking for
engineers,” Morre, 33, said. “Once the new cars and spare parts start coming in,
you won’t need to be an engineer to run a taxi here.”
Morre is
one of the army of university-educated Cubans stuck in manual jobs such as hotel
laundry or waiting tables. Their skills will be a big draw for companies looking
for investment opportunities in the island should the U.S. agree to end the
trade embargo that started in 1961, said Philip Brenner, a professor of
international relations at American University in Washington.
“The Cuban
development model is going to be based on high value-added production by an
educated population,” Brenner said. “No one in Cuba is talking about a future
scenario of making baseballs in sweatshops. They have people who would be adept
in pharmaceuticals, computer engineering and advanced mechanical machinery.”
Cuba’s
economic growth has slowed to 1.3% this year, almost half the official target
and down from 2.7% in 2013, according to government data.
Obama and
Cuban President Raul Castro announced the plans to re-establish diplomatic ties,
release some prisoners and work to ease a five-decade old embargo on Dec. 17.
Laundry
lady Lucila Gomez, 62, hopes the move will lead to the re-opening of the pajama
factory she used to supervise in Havana. After getting a degree at Moscow State
Textile University and working in Bulgaria, Gomez now irons tourist shirts in
the Havana Libre hotel.
“Hopefully
I won’t have to end my career doing laundry,” she said.
Decades of
Soviet investment in Cuba’s education system have brought universal literacy to
the island, with about 100,000 people trained at Russian and Ukrainian
universities out of a population of 11.3 million.
Eighty
percent of college-aged Cubans were enrolled in post-secondary education in
2011, the highest in Latin America and the Caribbean, compared with 75% in
Argentina, 71% in Chile and 29% for Mexico, according to the United Nations.
There is a
special focus on hard sciences like medicine and engineering, an investment in
human capital that has helped the country stay afloat since the end of subsidies
from the Soviet Union. About 30,000 Cuban doctors work in Venezuela to help pay
for the approximately 100,000 barrels a day of oil the South American country
supplied to Cuba in 2013.
In the
central province of Cienfuegos, Brazilian contractor Helio Piza is supervising
60 Cuban workers running a 30-year-old sugar plant without any spare parts.
“The level
of academic preparation here is very high,” Piza said in an interview in his
office in the Fifth of September plant on Dec. 29. “Education allows Cubans to
be ingenious with the little they have available.”
In the
rusty plant, dust covered workers were welding together hand-made metal parts of
sugar cane grinders on a December afternoon.
Alexandre
Carpenter, co-president of cigarette and cigar-maker Brascuba SA, has a similar
impression to Piza. On the factory floor, a quarter of the Cubans have a college
degree, while for the company as a whole the figure is 46 percent, Carpenter
said by phone from Brazil.
Brascuba,
a joint venture between Rio de Janeiro-based Souza Cruz SA and Tabacuba, employs
500 people on the island, of which 492 are Cubans.
“The Cuban
workforce is a key point for investment in the country,” Carpenter said. “When
you’re installing a new machine, for example, you have high-level discussions
with the engineers. They are much more prepared than the average Brazilian
worker.”
Sugar
plant manager Piza said the challenge is to attract younger workers prepared to
work on state salaries of about $20 a month and to train them to work with
modern technology and profit-making mentality.
“It’s
difficult to motivate workers to be productive on the kind of money we can
offer,” he said.
Cuban
migrants into the U.S. have benefited from their higher educational levels.
Cuban-born
residents earn 20% more on average than the Hispanic population overall and are
more likely to own their home, according to 2011 census data cited by the
Washington-based Pew Research Center. About two million Hispanics of Cuban
origin live in the U.S., with 70 % in Florida.
Jodi Bond,
vice president for the Americas at the U.S. Chamber of Commerce, said U.S.
companies are likely to step up lobbying for Congress to end the embargo on
Cuba, opening the door to investment.
“They will
actively work to lift the embargo,” Bond said in a telephone interview from
Washington. “There’s potential for explosive growth, opportunities for engineers
and collaboration in the health, technology and telecommunications industries.
Much of that may move slowly, but the companies see a lot of promise.”
In the
third quarter of 2014, Gross Domestic Product (GDP) for Brunei Darussalam at
current prices was estimated at BND$4,428.7 million compared to BND$4,944
million in the second quarter. In terms of GDP growth at constant prices, the
third quarter recorded a decline of 0.2% year-on-year, Borneo Bulletin reported.
This was
mainly attributed to the decrease of the Oil & Gas sector by 3.2%.
Meanwhile,
the Non-Oil & Gas sector increased by 1.8%.
In the
third quarter of 2014, the Agriculture, Forestry & Fishery sector increased by
4.3% year-on-year due to the increase in the production of Livestock and Poultry
and Vegetables, Fruit & Other Agriculture by 8.5% and 1.7% respectively.
The
Industrial sector continued to decline by 2.5% after a decrease of 0.9% in the
second quarter. This was due to negative growth of Manufacturing by 11.0%.
Meanwhile,
both Mining and Construction increased by 0.9% followed by Electricity & Water
by 0.7%.
The
Services sector continued to grow by 1.9%, after an increase of 2.3% in the
second quarter.
Finance
recorded the highest growth of 2.8%, followed by Transport & Communication 2.2%,
Trade 1.9%, Government services 1.8%, Private Services 1.6% and Real Estate &
Ownership of Dwellings 1.1%.
By the
expenditure approach, GDP decline was due to the decrease in Exports of Goods
and Services by 2.2%.
Meanwhile,
Imports of Goods and Services has the highest increase by 17.9% followed by
Personal Consumption Expenditure by 2.% year-on-year, Government Consumption
Expenditure 1.9% and Capital Formation 1.1%.
Even as a
slew of indicators reveal the weak state of China’s economy, officials are
poised to revise the official size of Chinese gross domestic product, probably
upward, making it as much as 10% larger than previously thought.
Beijing
will reveal the findings from the country’s roughly twice-a-decade economic
census, for which almost 3 million census takers canvassed more than 10 million
companies and 60 million individual-owned private enterprises earlier this year.
The two
previous censuses saw GDP amended upward by 4.4% in 2008 and 16.8% in 2004, as
they more accurately measured China’s fast-growing services sector. A Chinese
vice premier, Zhang Gaoli, referred to the census data as “precious wealth”
earlier this year, reported the official Xinhua News Agency.
A
Bloomberg News survey of 12 economists showed revisions due to the census will
likely push 2013 GDP up 1% to 3%, or as much as $275 billion, while lifting 2014
GDP growth 0.1 to 0.3 percentage points. That could help China reach its
official goal of about 7.5 percent GDP growth this year.
“The
government under Premier Li [Keqiang] will use whatever means to achieve” the
target, said Liu Li-Gang, chief greater China economist at Australia & New
Zealand Banking Group in Hong Kong. Liu expects the census revisions to add from
0.1 to 0.3 percentage points to this year’s GDP growth and has increased his
estimate from 7.2% to 7.5%, as Beijing has increased spending and property
prices stabilize.
Meanwhile,
Chinese officials will also announce new methods to count R&D expenditures and
measure housing expenses—both more in line with internationally accepted
standards—which are also expected to boost GDP. Those changes, along with better
counting due to the census, will lead China’s National Bureau of Statistics to
revise 2013 GDP up 5% to 10%, predicts the New York-based consultancy Rhodium
Group.
“China is
using an upgraded methodology and the results should be taken seriously,” wrote
Rhodium economists Daniel Rosen and Beibei Bao. “Beijing is counting activity
previously underestimated, and converging toward international best practice.”
Similarly,
London-based Capital Economics is expecting a 5% to 10% upward revision in the
size of Chinese GDP, in a research note published recently. Still, no reason to
get too excited, the macroeconomic research company argues.
“Of
course, nothing about the economy will have changed. It may be seen to be
slightly richer in both per capita and aggregate terms and a few steps closer to
overtaking the US in size,” writes Capital Economics chief Asia economist Mark
William. “Even if recent years’ growth is determined to have been a little
higher, this won’t make a big difference to the scale of the slowdown that has
seen GDP growth halve since 2007. Policymakers’ priorities won’t change.”
The
city-state’s economy expanded less than economists estimated last quarter after
its manufacturing industry weakened with slowing growth in China and an uneven
global recovery.
Gross
domestic product rose an annualized 1.6% in the three months to Dec 31 from the
previous quarter, when it expanded 3.1%, the trade ministry said in a statement.
The median of five estimates in a Bloomberg News survey was for a 3% expansion.
Singapore's productivity growth has been weak, Prime Minister Lee Hsien Loong
said on Dec 31, and the trade ministry has said the economic outlook for 2015 is
"modest" with a tight labor market restraining some industries. The
export-dependent island is also adjusting to a China on track to record its
weakest full-year growth in almost a quarter century, even as the US saw its
biggest expansion in more than a decade in the third quarter.
"It caps a
pretty moderate year for growth," said Michael Wan, a Singapore-based economist
at Credit Suisse Group AG, who predicts the Southeast Asian nation will expand
3.5% in 2015. "China's slowing, Japan's pretty moribund, Europe's still
essentially going nowhere," with only the U.S. providing some relief in the
global economy.
A Chinese
manufacturing gauge slipped to the lowest level in 18 months in December, adding
to evidence that the economy probably grew last year at the slowest pace since
1990, according to analysts surveyed by Bloomberg News. Meanwhile, the US
expanded at a 5% annualized rate in the three months ended in September, and a
report this week showed consumer confidence at a near seven-year high.
Singapore's GDP grew 1.5% in the three months through December from a year
earlier, compared with a median estimate of 1.8%. The economy expanded 2.8% last
year, according to the advance estimates which are computed largely from figures
in the first two months of the quarter and may be revised.
Singapore's manufacturing fell 5.8% last quarter from the previous three months,
the trade ministry said. The services industry grew 3.8% in the same period,
while construction expanded 8%.
Manufacturing also contracted from a year earlier, mainly due to a decline in
the output of the transport engineering, electronics and general manufacturing
clusters, the report said. Growth in construction was mainly supported by public
sector activities, it said.
"If you
look forward into 2015, I think there's probably a bit more reason to think that
it should improve," said Mr. Wan. "You do have oil prices coming down, and that
should be a boon for consumers, especially in the developed world, and I think
that should be a positive for an open economy like Singapore."
The Thai
economy continued to slow in November.
The
domestic front remained anemic. Private consumption grew 0.7% from a year ago
versus the 0.3% in October, but one would not call 0.7% growth a major
improvement.
Economists
had pinned hope on external demand, particularly in the form of tourism, since
Thailand is now back to normal after the military coup in May. Well, they are
disappointed. Tourist arrivals decelerated to 2.5% from a year ago from 6.1% in
October. The Bank of Thailand blamed “the depreciation of the Russian ruble and
Japanese yen,” which resulted in fewer tourists from the two countries.
As such,
Nomura Securities cut its 2014 GDP growth forecast from 1.1% to 0.6% only, now
expecting the Thai economy to grow by 2% in the fourth-quarter.
According
to the General Statistics Office (GSO), Vietnam’s total domestic product (GDP)
in 2014 was estimated to increase 5.98% - the highest since 2011.
This is
also the first time after three years that the country’s GDP exceeded the yearly
target set by the National Assembly (5.8% for 2014). In particular, GDP growth
improved each quarter, with an increase of 5.06% in the first quarter; 5.34% in
the second quarter; 6.07% in the third quarter and 6.96% in the fourth quarter.
Vietnam’s
GDP in 2014 is estimated at nearly VND2,700 trillion compare to over VND2,500
trillion, based on the price in 2010. If it is calculated at the current price,
GDP this year reached more than VND3,900 trillion and nearly VND3,600 trillion
last year.
The
structure of the economy moved in a positive direction, the share of
agriculture, forestry and fisheries continued to decline, while industry and
construction increased and the service sector maintained the rate of last year.
In 2014,
industrial production increased by 7.6%, much higher than the growth of 5.6% in
2013 with a rapidly increasing trend in the last months of the year (10.1%
growth in the fourth quarter compared to 5.3% of the first quarter). Some
industries had a high production index, including electronic products,
computers, mobile phones, motored vehicles, and leather and footwear.
The growth
rate of the inventory index fell. The inventory index of the processing and
manufacturing industry by Dec. 1 2014 increased by 10% compared to the same
period of 2013, lower than that in 2012 (20.1%) and 2013 (10.2%).
The total
social development investment in 2014 increased by 11% compared to 2013 and was
equivalent to 31% of GDP, higher than 30.4% in the previous year.
Budget
revenue by mid-December reached VND814.1 trillion, 4% higher than the annual
estimates. Meanwhile, budget spending was estimated at VND968.5 trillion, or 96%
of the annual estimates. Estimated budget deficit this year is VND154.4
trillion, or 5.7% of GDP.
The total
retail sales of goods and services in 2014 were estimated to increase by 10.6%
compared to 2013.
For 2015,
with the positive signs of the economy, the National Assembly set a target of
6.2% of GDP growth, and inflation at 5%.
A new
Macroeconomic Outlook report from Intesa Sanpaolo argues that oil prices below
$60 a barrel will add up to 0.4% economic growth to oil importing Euro area
nations. Intesa Sanpaolo analyst Luca Mazzomo also points out that there are
likely to be positive secondary effects that ripple through oil importing
economies for some time even if prices begin to move back up in a few months.
Oil prices
began trending down over the summer, but the sell-off intensified into a frenzy
in the fourth quarter. Compared to the firm’s September scenario when prices
were forecast to remain roughly stable at prices close to those in mid-2014, the
drop in crude prices to date amounts to a 28.3% drop in average 2015 terms. The
alternative scenario of a deeper fall to $60 seems more and more likely, at
least for the first half of next year. Relative to net oil imports in 2013,
lower oil prices at the 28.3% level implies savings on imports at current prices
of 0.4-0.6% of GDP for most first world nations, increasing to 0.6-0.8% in the
$60 scenario.
Of note,
the actual impact on GDP will be somewhat less because of the contraction of
exports to producer countries, guesstimated at 0.1-0.2% of GDP. This means the
net effect from the drop in oil prices alone will total to 0.3-0.4% of GDP for
the three major economies of the euro area, and for the U.S. and China.
Israel’s
economy expanded faster than previously estimated in 2014 on accelerated
consumer spending, the Central Bureau of Statistics said, revising an earlier
forecast.
Gross
domestic product increased 2.6% from 2013, the bureau said at a Jerusalem press
conference, based on partial data for the year. The figure compares with the
bureau’s previous 2.2% estimate.
Growth was
crimped in part by 50 days of fighting with the Hamas-controlled Gaza Strip in
July and August. The economy contracted 0.1% in the third quarter, the bureau
said, revising an earlier estimated contraction of 0.4%.
“This year
was special because of the significant effect of Operation Protective Edge,”
said Oz Shimony, head of macroeconomics at the bureau, referring to the Gaza
conflict. “We already see indicators that point to a return to the growth
trend.”
Expectations that the government would cancel the 18-percent value-added tax on
homes for eligible first-time buyers also affected growth, as homebuyers delayed
purchases.
“There is
no doubt that expectations for the VAT law affected the housing market fairly
strongly, and as a result, the building sector,” Shimony said. “It can clearly
be seen in fixed capital investment figures.”
The
zero-VAT plan, championed by former Finance Minister Yair Lapid, withered after
Prime Minister Benjamin Netanyahu fired him earlier this month and called early
elections that will be held in March.
Earlier
this week, the Bank of Israel estimated growth at 2.5% this year, up from a
September prediction of 2.3%. Last year, the economy expanded 3.2%.
The
central bank’s monetary policy committee, led by Governor Karnit Flug, held the
benchmark interest rate at a record low on Dec. 29, citing new data this month
indicating a recovery. The bank predicted “a relatively high growth rate” in the
coming quarters.
Consumer
spending rose 3.8% this year, compared with 3.3% last year, the statistics
bureau said. Government outlays also increased by 3.8%, up from 3.5% in 2013.
Exports of
goods and services inched up 0.6% in 2014, compared with an increase of 1.5%
last year, the bureau said. Exports (ISTBTSE) excluding diamonds and startups
rose 3.6%, after declining 0.3% in 2013.
Investment
in fixed capital declined 2.7%, after rising 1.1%in 2013.
GDP per
capita went up 0.7% in 2014 to 132,500 shekels ($37,000), the bureau said. Last
year, GDP per capita increased 1.3%.
Israel
posted a current-account surplus of $10.6 billion in 2014, or 3.5% of GDP,
compared with a surplus of $6.9 billion, or 2.4% of GDP, the previous year.
Russia’s
economy contracted last month for the first time in five years amid the sharp
fall in oil prices and the collapse of the ruble.
Gross
domestic product shrank by 0.5% in November compared to the same month last
year, the economy ministry said, as Russia’s currency resumed its slide, which
had been halted with a series of robust government support measures over the
previous 10 days.
The ruble
weakened by 5.4%, closing at 57.1 against the dollar in Moscow.
Analysts
said the contraction in November showed that the recent steep slide in oil
prices and the currency crisis were bringing on a recession, which had long been
expected but fought off earlier this year.
In the
first 11 months of the year, the economy grew by 0.6% compared with the same
period last year.
Russia’s
economic growth had already been slowing sharply since 2013 due to a drop off in
investment. After Moscow’s annexation of Crimea and its support for the
separatist war in eastern Ukraine triggered western sanctions which virtually
exclude Russian banks and corporates from international capital markets,
economists repeatedly predicted that the country would slide into recession this
year. But until October, a temporary revival in industrial production and strong
agricultural production helped keep growth just above zero.
However,
when oil prices began to plunge dramatically in October, the ruble depreciated
so fast that it triggered panic in Russian households. A first wave of selling
prompted the central bank to float the ruble in November. On December 16 the
ruble suffered its biggest intraday drop since 1998, plummeting to Rbs80 against
the dollar in a fully-fledged currency crisis.
Even the
Russian authorities now predict a recession. The central bank forecasts the
economy will contract by 4.5% next year if oil prices average US$60 a barrel.
Dmitry
Polevoy, chief economist for Russia at ING Bank in Moscow, said the worsening
economic situation was a result of sanctions, oil prices and the market panic
earlier this month. “There is no cause for optimism,” he said.
The UAE
has turned into a major economic power in the region over the past 10 years,
with its Gross Domestic Product (GDP) growing from Dh314.8 billion in 2004 to
Dh1.54 trillion in 2014, according to a report on the online portal,
HotelandRest.
The report
showed that the UAE has witnessed a transition from an oil-based economy to a
more diverse one with multiple sources of income. In the past 10 years, non-oil
sectors contributed 69% of the total GDP, dropping the contribution of the oil
sector to almost one third.
The
economic growth taking place in the 10 years since the beginning of President
His Highness Shaikh Khalifa Bin Zayed Al Nahyan’s presidency is expected to
continue. According to a forecast by the International Monetary Fund, the
country’s GDP will rise in 2018 to Dh1.74 trillion.
Over the
past 43 years, though, the UAE’s GDP has increased more than 236 times, going up
from nearly Dh6.5 billion in 1971, as per the report.
The UAE is
also expected to continue diversifying its income sources — a policy initiated
by Shaikh Zayed Bin Sultan Al Nahyan.
The report
added that as a result the successful policies led by Shaikh Khalifa, the UAE
has positioned itself in 10th place internationally on the per capita income
index, with the national savings rate of GDP rising to 32.9%.
The rate
is the largest in the world, and exceeds most major economies such as Germany,
France, Italy, Brazil and Canada among others.
In terms
of national per capita gross income, the report predicted that the UAE will
become one of the top 10 countries in the world by 2020, noting that the country
currently holds the 16th place.
The
president’s policies were also behind the UAE’s current position as one of the
most economically-powerful countries in the world in terms of liquidity and cash
surplus.
Highlighting the travel and tourism sector, the report stressed that the UAE
will be one of the best countries in the world in terms of attracting tourists
due to its tourism infrastructure.
The report
is based on a recent research by the World Travel and Tourism Council, which
expected the travel and tourism sector to contribute about Dh122 billion to the
country’s GDP.
The
contribution, which was 8.5% of GDP in 2014, represents an annual increase of
4.5% when compared to 2013.
The United
Kingdom has overtaken France to become the fifth largest economy in the world
after the money made from prostitution and drugs was counted in the GDP figure
for the first time.
Britain's
economy is expected to be worth a total £1.86trillion in 2014 - up from
£1.63trillion the previous year - compared to £1.82trillion in France, new
calculations reveal.
Government
figures show that prostitution added about £4.3billion to the economy while
illegal drugs provided a roughly £6.7billion boost.
The darker
corners of the economy are now being counted - alongside traditional sectors
such as farming and financial services - as part of an overhaul in the way
economic activity is measured
This year
is the first time that the GDP - an economic estimate produced every three
months by the Office for National Statistics (ONS) - has included the money made
from illegal drugs and sex work.
The
change, which was introduced as part of EU rules implemented earlier this year,
means that a booming sex trade or an expansion in the market for illegal drugs
can boost the Chancellor's outlook.
These more
inclusive figures edged the nation ahead of France in world rankings when they
were used in calculations of the size of the UK's economy.
But
experts at the Centre for Economics and Business Research, who produced the
World Economic League Table, noted that France did not include the sex work and
illegal drugs in its estimations.
It added
that, if it did, there was a possibility that it might retake its fifth place
position - and that the UK might drop down to sixth.
France
does not include prostitution and illegal drugs in calculations as it does not
believe they constitute 'voluntary commercial activity', adding that they are
often tied to criminal networks.
The GDP
covers every sector - from manufacturing and construction to agriculture, public
services and tourism. It now also covers the import, production and sale of
illegal drugs and the ‘provision of prostitution services’.
The data
classes growing drugs or importing them as ‘production’, buying them for home
use as ‘expenditure’ and selling them as ‘income’.
It covers
crack cocaine, powder cocaine, heroin, cannabis, ecstasy and amphetamines.
While some
EU countries give a detailed breakdown of prostitution types such as ‘street’
and ‘escorts’, the UK is not able to do this with the data available.
Illegal
drugs and sex work were worth £12.3bn, or 0.7% of our GDP, making them as
economically significant as agriculture, according to ONS figures released this
year.
The CEBR
expects Britain to pull further ahead of France in the coming years. The data
also showed that China is expected to overtake the US as the world's largest
economy in 2025.
Meanwhile,
the figures also showed the impact of the economic crisis in Russia, which
slipped two places in the 2014 league table to tenth, back below India and
Italy.
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