Last year was a historically bad year for many reasons, but to economists that badness is most visible in our widest measure of the economy: Gross Domestic Product. All issues with GDP aside, especially as a perfect measure of relative living standards, the annual real (inflation-adjusted) growth rate of GDP gives us a good picture of how much national economies were harmed by the pandemic, private behavior changes, and government restrictions (disentangling these three effects is hard — I will leave that to the academic journals rather than a blog post).
While GDP is reported with a lag of several months and is subject to revision, many countries have now reported full GDP data for 2020. For those that don’t follow GDP very closely, for a developed country an annual rate of growth of about 2% is pretty normal and respectable. For further context, in the US recent recessions had declines of -2.5% in 2009, -0.1% 1991, and -1.8% in 1982 (the 2001 recession never had an annual decline, only a few quarterly declines). While it is unusual for countries to go more than 10 years without a decline, it does happen. For example, Australia’s last annual decline was in 1991, when it declined -1.3%. But that’s unusual.
This chart shows the 2020 GDP growth rates (mostly negative, with one exception — Taiwan) for 2020 for most countries were I could find data. What this number shows us is the total amount of economic activity in 2020 compared with the total amount of economic activity in 2019 (adjusted for inflation, of course). I believe this is a better measure than others you might see, such as data that compares the level in the 4th quarters of 2020 and 2019 (a country could have had a terrible 2nd quarter but still gotten back close to the prior year level, and a simple Q-over-Q measure would miss that decline). As I did for the 3rd quarter data, this chart also plots the cumulative COVID-19 death rates on the vertical axis.
What can we learn from this data?Continue reading