PITY THE world’s chartmakers. Most economic forecasters expect the GDP growth figure announced on October 29 to be somewhere in the neighborhood of 25 to 30 percent at an annual rate; some think it could even come in a few percentage points higher than that. No statistical measure is perfect. It’s also a safe bet that the number will be ballyhooed as a great accomplishment. Congress can help in that process by passing another fiscal support bill. A similar year-on-year drop is expected for the world economy; the IMF expects global output to shrink by 4.4% this year. Unfortunately, there’s ample cause for concern that the recovery may continue to stall. The unemployment rate in September — the latest figure currently available — was 7.9 percent. During the spring quarter, there was a colossal drop in real GDP — more than 31 percent at an annual rate. All rights reserved. Company shutdowns that sever job ties could delay a return to full employment and extend the period during which jobless workers’ skills and networks erode. The big number for GDP growth during the July-September period will represent a step back toward normal, but it will be no cause for unfurling another “Mission Accomplished” banner. Millions turn to Vox each month to understand what’s happening in the news, from the coronavirus crisis to a racial reckoning to what is, quite possibly, the most consequential presidential election of our lifetimes. No one knows for sure when a safe and effective vaccine will be widely available, but everyone agrees that it will be difficult to build a durable and complete economic recovery until one is. ■, Editor’s note: Some of our covid-19 coverage is free for readers of The Economist Today, our daily newsletter. newsletter, Exclusive: Rashida Tlaib and AOC have a proposal for a fairer financial system — public banking, 9 questions about 2020’s record-breaking early vote, answered, Europe’s second wave of Covid-19 doesn’t excuse Trump’s failures, The 3 biggest governor races to watch in 2020, Georgia’s two super-competitive Senate races, explained, A guide to the Trump administration’s biggest scandals, accomplishments, and policies, A 7.0 earthquake struck near Greece and Turkey, killing at least 14 and injuring hundreds, You don’t have to love Star Wars to dig The Mandalorian, Why many Americans refuse to participate in contact tracing, Lean into uncertainty with Trust Exercise, the Vox Book Club’s November pick. Five days before Election Day, new data will be released providing the first look at how fast the economy grew in the third quarter of 2020. Economic data will likely show record-breaking growth. Consider the potential sources of long-run damage. For more stories and our pandemic tracker, see our hub, This article appeared in the Finance & economics section of the print edition under the headline "The notorious GDP", Sign up to our free daily newsletter, The Economist today, Published since September 1843 to take part in “a severe contest between intelligence, which presses forward, and an unworthy, timid ignorance obstructing our progress.”. In May and June, the pace of household spending rebounded quickly following a breathtaking collapse in the preceding two months. Why has the momentum of recovery slowed? Copyright © The Economist Newspaper Limited 2020. But in reality, the job of rebuilding the economy will be far from done. GDP is a crude proxy for a country’s economic health at the best of times, the sterling efforts of government data-gatherers notwithstanding. But another possibility is that congressional action will have to await a lame-duck session late this year, or even be postponed until the new Congress is seated in 2021. Looks, though, can be deceiving. The invisible struggle of the Asian American small-business owner. Support for Trump is tearing apart Vietnamese American families. The extent to which investment today affects tomorrow’s capacity to grow is also harder to assess than you might suppose. (Why not 36.4 percent, if GDP declined at a 5 percent annual rate in the first quarter, and a further 31.4 percent rate in the second quarter? If the number is somewhere in that range, it will indeed earn the title of the fastest GDP growth figure ever posted. On October 29th the Bureau of Economic Analysis reported that American GDP rose at an annual pace of 33% in the third quarter, compared with the second. But in July and August, the improvement slowed to a crawl. If you have already contributed, thank you. Times Internet Limited. That was down from a high of 14.7 percent in April, but still more than twice the 3.5 percent rate in February, just before the roof fell in. And it will signify that the country has made some progress on the road to recovery. Copyright © 2020. Times Syndication Service. Capital spending accounted for all of its economic growth in the second quarter, compared with the previous year, offsetting a steep drop in consumption, and for more than half of the rise in GDP in the third quarter. GDP shot up 33% on an annualized rate in the third quarter after dropping 31% in the second quarter. When firms explore ways to make use of new technologies, as many have been forced to do this year, they are spending on “intangible capital”, which may improve long-run growth without being recorded in today’s GDP. Because that’s not how it works. This time, it was service industries that took it on the chin — especially ones that depend on lots of people being close together. More borrowing today is likely to be better for long-run fiscal sustainability than a stingy response that depresses incomes for years to come.). Suppose GDP was at 100, and then it fell to 50 — a drop of 50 percent. China’s expansion this year, by contrast, has been powered by investment in housing and infrastructure. If they were not, however, then an impressive GDP figure in 2020 may have bought little more than short-term bragging rights for the Chinese government. One likely contributing factor is that the easy part has already been done. Americans may have to take to the streets. Though the third-quarter rise is larger, in absolute terms, than the second-quarter fall, the fact that the third-quarter growth rate took place from a pandemic-diminished base of output means that American GDP will still be nearly 3% lower than it was a year ago. Most of the rebound reflected in the GDP growth figure that will be published at the end of October actually occurred in May and June — before the third quarter even began. Hysteresis is a serious worry. GDP is what economists call a “flow” variable: an estimate of how much is produced (or, equivalently, how much is spent or earned) in a period of time. It can be a positive or negative number (negative growth rate, indicating economic contraction). Female Zebra Foal Becomes New Addition to Mys... Karnataka Chief Minister Announces Rs 25,000 ... Trade, hotels, transport, and communication, Financing, insurance, real estate, and business services. And it will remain a little more than 5 percent below where it would have been if growth had continued steadily, uninterrupted by the pandemic, at the average pace of 2018 and 2019. A couple of quarters during the Great Depression and during the decommissioning after World War II were probably worse, but when you need to reach back to the ’30s and ’40s for comparisons, you begin to get the idea of how bad the second quarter of this year was. In fact, production in the second quarter was 9% below that in the first—still staggering, but quite a lot less dramatic. Our mission has never been more vital than it is in this moment: to empower you through understanding. Real GDP would have to have increased a whopping 53 percent at an annual rate in the third quarter to return to its previous level. A shortfall in investment has also checked the flow of GDP this year in ways that might depress long-run growth, by reducing levels of capital per worker and undercutting productivity growth. Although stimulus cheques pushed up disposable incomes in the second quarter in America, for instance, households still saved 26% of their income, up from 7% in the second quarter of 2019. Tumbling private investment accounted for roughly a quarter of the dramatic decline in America’s GDP in the second quarter. If it then rose by 50 percent, it would only move back to 75. This year’s GDP figures pose a number of interpretative challenges. Tempting as it is to compare flows, sound economic management demands a different focus in the face of a deadly pandemic. For years, normal economic fluctuations will be dwarfed by the extraordinary gyrations of 2020, such as the third-quarter GDP figures that are now rolling in. These data are informative—measures of output today are in part a reflection of governments’ success or failure in controlling the spread of covid-19. Sign up for the Unfortunately, there is still a long way to go yet in putting back together any semblance of a robust economy. Yet they can easily mislead, and should be treated with care. Such relief may not have boosted GDP by much so far: recipients may have chosen to save their handouts, rather than spending them, or may have been forced to do so, because of lockdowns. In fact, the third-quarter increase will represent only a partial rebound from another record-setter: the sharpest collapse ever recorded during the second quarter. If China’s economy is so strong, why isn’t its currency stronger. Even when the economy and the news advertising market recovers, your support will be a critical part of sustaining our resource-intensive work. In Italy the shortfall may persist through 2025. Description: It can be measured by three methods, namely, 1. The question is whether kinks today cause lingering damage to the hose, affecting its long-run capacity—ie, whether there will be what economists call “hysteresis”. Lost income for firms and households could mean loan defaults and bankruptcies, all of which stand to impair recovery as the threat from covid-19 recedes. That drop resulted from the imperative to put the economy into a temporary deep-freeze, in hopes of slowing the spread of the coronavirus. Job growth has slowed as well. If you haven’t, please consider helping everyone make sense of an increasingly chaotic world: Contribute today from as little as $3. The second-quarter decline was triple the size of the previous worst-ever quarterly drop since the current method of score-keeping began in 1947. But our distinctive brand of explanatory journalism takes resources. IHS Markit constructs estimates of monthly GDP using methodology that mimics, as closely as possible, the procedures underlying the official quarterly numbers published by the Commerce Department. This is the worst that India’s Sound crazy? If you need convincing on that point, just ask the millions of people who remain jobless or the millions who report being food-insecure. The GDP growth rate measures the percentage change in real GDP (GDP adjusted for inflation) from one period to another, typically as a comparison between the most recent quarter or year and the previous one. In more typical post-World War II recessions, manufacturing and construction have been hit especially hard.
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