EU GDP revision to have small impact on public finance ratios

BRUSSELS Fri Jan 17, 2014 12:05pm EST

BRUSSELS Jan 17 (Reuters) - The European Union will revise upwards its members' economic growth data from September but the change will have little effect on indicators that are relevant to the EU's fiscal discipline regime, the European Commission said.

The upward revision of annual Gross Domestic Product data, by an average of 2.4 percent, will be a result of a switch to a new accounting standard that is being implemented around the world. The United States adopted the standard in August.

The GDP revisions, which will go back at least to 1995, will have an impact on countries' debt-to-GDP and budget deficit to GDP ratios - both important for the EU as measures to keep public finances in check, but not much.

"Any changes are likely to be very small - the revision does not change materially the economic picture. One could not argue that the picture of the fiscal situation in any country would materially change," Commission spokesman Olivier Bailly said.

The main changes are that research and development will be counted as investment rather than current expenditure. Spending on weapons systems will also be treated as investment.

The new standard will also affect the treatment of pensions, insurance and goods sent abroad for processing.

Latvia, Lithuania, Hungary, Poland and Romania are likely to see an increase in GDP between zero and 1 percent as a result of the switch, Finland and Sweden can expect the highest revision of between 4 and 5 percent, Austria and Britain between 3 and 4, and Belgium, Denmark, Germany, France and the Netherlands of between 2 and 3 percent of GDP.

Assuming a 3 percent upward revision of 2013 data, Germany's GDP last year will be 82 billion euros ($111 billion) higher than the earlier expected 2,736 billion, bringing its debt to GDP ratio to around 76 percent from around 80 percent, Reuters calculations showed.

Germany's budget deficit in 2013 will be 0.06 percent of GDP rather than 0.1 percent. Germany's

The deficit and debt ratios matter, because if they breach certain thresholds or do not diminish quickly enough, they can trigger EU disciplinary action, called the Excessive Deficit Procedure (EDP), which could end in fines for countries.

But Bailly said it was not possible to assess the impact of the switch to the new system at this stage.

"It is inappropriate to comment on the potential impact on debt and deficit until member states' data for the October EDP notification is known," he said.

"The change in GDP is not the only factor that contributes to changes in the EDP data. Changes or improvements of source data, reclassification, amongst others, must also be taken into consideration," he said.

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