Masking Economic Reality

Leslie G. Manison

World Economics, 2026, vol. 27, issue 3, 73-90

Abstract: The financialization of economies inflates standard GDP measures by treating interest and fees of financial institutions as direct value added rather than as costs to firms and households, undermining the relevance of GDP and related debt indicators for assessing true economic performance and guiding policy. This distortion affects key macroeconomic ratios and policy decisions, as illustrated by Cyprus's questionable reliance on debt-to-GDP figures in the lead-up to the 2013 financial crisis. GDP statistics fail to capture societal well-being issues such as fair income distribution, with Cyprus demonstrating a widening gap between overall GDP growth and median employee incomes over the past decade. Most economic crises stem from collapses in private credit rather than unsustainable public debt, so policymakers should prioritise monitoring the quantity and quality of private debt over an obsession with government debt-to-GDP ratios. In Cyprus, the excessive buildup and misuse of private debt before 2013, followed by inequitable handling of impaired loans and property collateral afterward, severely hindered real economic recovery and inflicted hardship on households and businesses.

Date: 2026
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