Post-Covid data needs to be handled carefully
The world is the best Recovering from the 80-year recessionAccording to the World Bank, it is growing at the fastest rate since the 1970s. Although a strong recovery is welcome, such a steep growth rate also represents a cautionary tale about interpreting economic statistics. The record-breaking growth rate mainly reflects not the progress of this year, but the disaster of the previous year.
Economic statistics should always be handled with care-the economy changes with growth, and methodological changes have a major impact on the data-but the coronavirus pandemic has made it more difficult to interpret this year’s data. Although annual growth rates are usually the best way to judge whether living standards are good or bad, they will inevitably soar this year because the reopened economy is in sharp contrast to the closed economy.
What economists call the “base effect”—the way you start to measure how fast things grow—may be as important in determining data as actual economic performance. This is a purely mathematical product, not a trend of faster growth after recession.
Highest annual growth rate — The International Monetary Fund predicts that France will become the fastest-growing country in the G7 rich countries in 2021 — this will partly reflect the bleak experience during the blockade. Japan ranked last, reflecting that it has done much better than Europe in controlling the virus and therefore experienced a more shallow recession. Measured from this higher “base” will reduce growth. However, from this round of perspective, France’s economic performance will be worse.
The best way to judge this year’s comparative performance is not to compare with the previous year, but to compare before the pandemic. On this indicator, the statistics will look very different-France will be at the bottom, while Japan will be closer to the top. Despite the fastest growth rate in nearly half a century, the World Bank estimates that by the end of 2021, the global economy will still be 2% smaller than it was in 2019-the picture will look worse compared to economic growth without a pandemic .
These problems will also hinder attempts to determine whether the economy is “overheated.” Wage growth and inflation data-any signs of price pressure closely watched by central bank governors and investors will be distorted by the base effect.A kind U.S. inflation rate soars to 5% In May this year, part of the reason was compared with the decline in the consumer price index in the same month last year.
This distortion also affects the labor market. As Gertjan Vlieghe, a member of the Monetary Policy Committee of the Bank of England, said, Point outEven if the wages in the private sector in the UK remain the same next year, their annual growth rate will rise to 7% and then fall to a more normal level. “Combination effect”And the base effect will affect these numbers-during the pandemic, low-wage workers lost their jobs disproportionately, mathematically increasing the average wage, but it does not mean an improvement in living standards
Currently, economic statistics in developed countries are distorted compared to the month when the pandemic was the worst. Political controversy may also be inevitable—many people will be more concerned about choosing data to prove their views and ignore warnings—but there is no need for central bankers or professional investors to be misled. It is always wise to thoroughly investigate the data to find out its meaning, but this year it is more important than ever.