On Oct. 17, the European Union will
get some good news: That day, the bloc’s statistics office will
announce that the EU economy is actually around 2.5% bigger than
previously thought.
But don’t break out the bubbly just yet. The expected boost in gross domestic product — based on early estimates from Eurostat — is the result of changes to the way the EU calculates national accounts, rather than an actual uptick in economic activity. Eurostat says the new accounting system, known as ESA 2010, will give a more accurate picture of what gets produced, spent and invested within the 28-country bloc.
The most significant change under ESA 2010 is that spending on research and development — whether by companies or the government — will be counted as an investment that creates value, or assets, for the future, just like spending on new machinery or infrastructure. Previously, this was recorded as “intermediate consumption” meaning it was deemed to be consumed at the end of each year or quarter.
Eurostat says the new treatment of R&D alone will lift EU GDP by around 1.9% and the changes vary widely from country to country. Finland, for instance, has said that the capitalization of R&D spending would increase its 2011 GDP by 3.7%, while countries such as Poland and Hungary expect little change.
Another boost to GDP figures will come from a similar change in the treatment of military expenditure, which will also be viewed as an investment for the future. “Military vessels are not ‘consumed’ at the end of their first year (except if sunk at war!). These types of weapon systems can be used over many years,” explains Eurostat. Military investment is expected to increase EU GDP by about 0.1%.
Along with the implementation of ESA 2010, many EU states are also updating the way they calculate contributions to GDP from illicit activities — ranging from drug sales, to prostitution, to the plumber paid under the table. The U.K. has said its 2009 GDP would have been £10 billion higher had those activities been included, although Eurostat insists that in most countries these changes won’t make much of an impact.
Read more: The EU’s GDP Is Bigger Than Thought — But Hold the Bubbly - Real Time Brussels - WSJ
But don’t break out the bubbly just yet. The expected boost in gross domestic product — based on early estimates from Eurostat — is the result of changes to the way the EU calculates national accounts, rather than an actual uptick in economic activity. Eurostat says the new accounting system, known as ESA 2010, will give a more accurate picture of what gets produced, spent and invested within the 28-country bloc.
The most significant change under ESA 2010 is that spending on research and development — whether by companies or the government — will be counted as an investment that creates value, or assets, for the future, just like spending on new machinery or infrastructure. Previously, this was recorded as “intermediate consumption” meaning it was deemed to be consumed at the end of each year or quarter.
Eurostat says the new treatment of R&D alone will lift EU GDP by around 1.9% and the changes vary widely from country to country. Finland, for instance, has said that the capitalization of R&D spending would increase its 2011 GDP by 3.7%, while countries such as Poland and Hungary expect little change.
Another boost to GDP figures will come from a similar change in the treatment of military expenditure, which will also be viewed as an investment for the future. “Military vessels are not ‘consumed’ at the end of their first year (except if sunk at war!). These types of weapon systems can be used over many years,” explains Eurostat. Military investment is expected to increase EU GDP by about 0.1%.
Along with the implementation of ESA 2010, many EU states are also updating the way they calculate contributions to GDP from illicit activities — ranging from drug sales, to prostitution, to the plumber paid under the table. The U.K. has said its 2009 GDP would have been £10 billion higher had those activities been included, although Eurostat insists that in most countries these changes won’t make much of an impact.
Read more: The EU’s GDP Is Bigger Than Thought — But Hold the Bubbly - Real Time Brussels - WSJ
