Belfast Telegraph

View from Dublin: sometimes 'meltdowns' are nothing of the sort

By Richard Curran

One newspaper described the stock markets as "melting" during the week. Time magazine referred to the "Dow's biggest plunge ever". Yet it wasn't a market meltdown as US and international stocks recovered most of their losses in subsequent sessions.

The Dow shed around 4% and European markets followed up the next day with losses in the 3% region. So how come such market volatility gets reported as a meltdown?

It all has to do with how the media uses the numbers it is getting from someone else. For example, the Dow Jones was among the highest territory it has ever been. Therefore a serious but not catastrophic share price fall will see it shed more in value that ever before. The stock market fall of last week is being attributed to fears about higher-than-expected inflation coming down the track in the US in particular. Fine, but a risk of that kind has been on the horizon for some time.

Last week, some British government estimates of the cost of Brexit to the economy were leaked. They suggested that Northern Ireland would be one of the worst-hit UK regions, where it could see its economic growth over the next 15 years stunted by 12% in the event that no new trade deal is reached. Even in a more benign scenario, growth could be held back by 2.5%. Media reports suggested that Northern Ireland would take a "12% hit". But what does this really mean?

Northern Ireland's GDP is roughly around €40bn. The British Government estimates do not say its GDP would shrink, they just talk about lower growth. This is meaningless, unless you know what assumptions are being made about economic growth without Brexit.

Let's say it was expected to average 1.5% over the next 15 years. That would see GDP in 15 years' time running at around €50bn. So are they saying it would be 12% lower growth and therefore GDP would be around €45bn instead of €50bn? That is a serious number but without the assumptions underpinning it, it is impossible to interpret in a meaningful way.

The idea that the Northern economy will be negatively affected stands up to scrutiny, but figures are being thrown around without real context. Perhaps in a world where computers make so many decisions about which shares to buy, we have forgotten how to ask some basic questions about the numbers being presented to us.

Belfast Telegraph

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