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Home Publications Blogs Beat the Press European Economic Growth: Can We Make Reporters Multiply by 4?

European Economic Growth: Can We Make Reporters Multiply by 4?

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Saturday, 13 November 2010 08:07

In the United States economic growth numbers are almost always presented as annual rates. In Europe and much of the rest of the world they are typically presented as quarterly rates. This means that if a reporter simply presents the official rate from a government agency, as the Post did in an article on the debt crises in Ireland and Portugal, they will be giving readers a quarterly growth rate. This will likely leave a large portion of the paper's readers confused as to actual growth rate.

It is a very simple matter to convert a quarterly growth rate into an annual rate. The proper way is to take the 1 plus the growth rate to the fourth power, an operation that could be done in far less than a second by almost any calculator produced in the last 15 years. However, for small numbers, like the 0.4 percent growth figure reported for the euro zone last quarter, it is just fine to multiply the quarterly rate by 4 to get a 1.6 percent annual rate.

Comments (6)Add Comment
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written by izzatzo, November 13, 2010 9:03
HI! BILLY MAYS HERE! AMERICA, YOU TOO CAN REACH THE SAME GROWTH RATE AS CHINA IN ONLY ONE QUARTER, OR EVEN IN ONE WEEK OR ONE DAY!

JUST SEND FOR OUR SYSTOLIC BLOOD PRESSURE KIT WHICH ALSO MEASURES INSTANTANEOUS GNP GROWTH RATES! JUST KEEP TAKING READINGS UNTIL THE EMPLOYMENT OUTPUT GAP DISAPPEARS AND YOU GET A JOB AND BLOOD PRESSURE DROPS AT THE SAME TIME!
exposing my stupidity
written by eRobin, November 13, 2010 9:24
I can't get that math to work - what am I doing wrong? 1.004^4, no?
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written by foosion, November 13, 2010 9:36
Dean left out a step:

1.004^4 = 1.01609
1.016 - 1 = .016 = 1.6%
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written by eRobin, November 13, 2010 10:31
duh. thanks :)
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written by Merijn Knibbe, November 13, 2010 11:29
Dean, or once you're wrong - it can be done with any calculator produed during the last 25 years. My real point: even for large economies there can be quite some seasonal or other 'noise' in quarterly data. There might even be sizeable structural 'noise'. I've been tinkering with the BLS quarterly productivity data - it turns out that, since 1948, productivity in the fourth quarter grew only half as much as in the other quarters, a development which took place especially in the sixties/early seventies. It might be a figment of the data, it might have something to do with inventories, it might be something else. But it sseems that not avery quarter might be the same (though quarter to quarter gowth rates of course assume that they are).
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written by diesel, November 13, 2010 12:21
And, Merijn, is there a repeating pattern in the variation between quarterly growth numbers? If so, then there is a multiplier which would enable one to extrapolate from any one to any of the others and so on which seems too simple to be likely but then what do I know? About this in particular? Nothing, except the math and logic.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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