Page 15 - QEB_2_2016_lowres

Market valuations are nearly always amplified by reports on the health of the real
economy, however over the last twelve months, the Irish Stock Exchange (ISE) declined
by more than 10%. Even before the Brexit announcement, ISE performance was negative
over the last twelve months. Critical indicators such as debt-to-GDP ratios fell significantly,
improving credit worthiness and likely the price of future government debt. But markets
did not move much in response to the reported Irish economic expansion. Perhaps
markets placed more emphasis on indicators (other than GDP), such as employment,
wages and consumer spend, which all show significantly more modest growth rates.
Revising GDP measurement methods or estimates is standard practice across all
economies. Here again, the contrast in market reactions between initial GDP estimates
and revisions are most peculiar. The initial official US annual 2015Q1 growth rate was
0.1%, which was revised 1% downwards one month later, and a final downward revision
to –2.9%. That is a revision downwards of about half a trillion US$. It was not so much
the dramatic revision of the number that got my attention, but the contrast in market
reaction between the two numbers. Market and public reaction would be significantly
more dramatic had the initial estimate reflected a 2.9% economic contraction. The
revision was barely noticed and hardly moved any market dials.

No Aiming Required, Just Shoot PROVINCIAL OUTLOOK NATIONAL OUTLOOK GLOBAL OUTLOOK GAP HOUSING INVESTOR NARRATIVE SPOT THE OPPORTUNITY PORTFOLIO INSIGHTS KHULISA NEWSLETTER ELECTRIC VEHICLES ENERGY SECURITY LOOKING AT GDP

Developing economic policy that is dominated by GDP goals can lead to unintended
and suboptimal economic and social outcomes. There are a number of very specific
examples of how GDP misguides policy decision on matters such as economic activity,
value and well-being.
A case in point: IHS estimates the cost to produce a 16 GB iPhone 6s Plus is $236. Because
the device is exported to the US for the manufactured price of $236 and sold in the US
for $749, value added in the US or contribution to US GDP equals $513 ($749 – $236). That
is, the value added by U.S advertising and the 19 year-old sales consultant is $513 to
GDP for every iPhone sold. This is without any production carried out in the US.

QUARTERLY ECONOMIC BULLETIN 2016 11