Category Archives: gdp

World Economy Teeters on Double Dip Coronavirus Recession

If it weren't for the skyrocketing spread of new COVID-19 cases in Europe and to lesser extents elsewhere around the globe, we would be happy to confirm the world's economy has begun to rebound from the coronavirus pandemic.

That's because we have tangible proof in the form of measurements of the concentration of atmospheric carbon dioxide measured monthly at the remote Mauna Loa Observatory. In October 2020, for the first time since the global coronavirus pandemic originated in China at the end of 2019, the rate at which CO₂ is accumulating in the Earth's atmosphere increased instead of decreased.

You can see the uptick for yourself in this chart showing the trailing twelve month average of the year-over-year change of the atmospheric concentration of carbon dioxide against a backdrop of the timing of major world economic events since January 1960.

Trailing Twelve Month Average of Year-Over-Year Change in Parts per Million of Atmospheric Carbon Dioxide, January 1960 - October 2020

The uptick confirms September 2020 as a bottom for the loss of GDP from the world's economy during the first phase of the SARS-CoV-2 coronavirus pandemic, with the estimated loss totaling $12 trillion U.S. dollars.

Unfortunately, the negative economic impact to the world from COVID-19 is not over yet. The soaring spread of the deadly infection within Europe, where many nationalized health systems lack sufficient capacity to cope with the growing number of hospitalizations in part because of their governments' chronic underinvestment in health care infrastructure and resources, means they can only cope by imposing new rounds of lockdowns on their populations.

The resulting closure of businesses combined with mandates for residents to stay at home will either slow growth or drive additional losses in the world's GDP. The extent to which other regions around the world replicate the measures that crushed GDP growth in the first phase of the pandemic will determine which of these scenarios will apply.

Previously on Political Calculations

Here is our series quantifying the negative impact of the coronavirus pandemic on the Earth's economy, presented in reverse chronological order.

Cumulative World GDP Loss From Coronavirus Pandemic Tops $11 Trillion

The estimated cumulative loss of GDP to the world economy since the coronavirus pandemic began in China now tops $11 trillion.

We are basing that assessment on the trend in the trailing twelve month average of the year over year change in the atmospheric concentration of carbon dioxide measured at the remote Mauna Loa Observatory. Here, we find that the pace at which CO₂ is increasing in the Earth's air has fallen from a trailing year average of 2.91 parts per million in December 2019 to a preliminary estimate of 2.58 parts per million in August 2020.

The falling trend since December 2019 can be seen in the latest update to a chart, which shows the history of this measure against a backdrop of the timing of major world economic events since January 1960.

The cumulative decline of just 0.34 parts per million of carbon dioxide in the atmosphere roughly translates to the equivalent of a $11.3 trillion reduction in the world's Gross Domestic Product. The default values in the following tool confirm the results of the math we have previously confirmed provides estimates of lost GDP in the right ballpark. If you're accessing this article on a site that republishes our RSS news feed, please click through to our site to access a working version of the tool.

Change in Atmospheric Carbon Dioxide
Input DataValues
Change in Carbon Dioxide in Atmosphere [Parts per Million]
World Population [billions]

Change in Amount of Carbon Dioxide Emitted into Atmosphere
Calculated ResultsValues
Carbon Dioxide Emissions [billions of Metric Tonnes]
Estimated Change in World GDP [trillions]

The cumulative GDP loss we've estimated is climbing up toward the $12 trillion global GDP loss the International Monetary Fund projected would result from the coronavirus pandemic back on 24 June 2020.

We think our near real-time estimates are running on the high side of a reasonable range of estimates for the amount of GDP the world has lost because of the coronavirus pandemic. That said, they are also the most current picture we have to quantify the economic impact of the pandemic on the Earth's economy.

References

National Oceanographic and Atmospheric Administration. Earth System Research Laboratory. Mauna Loa Observatory CO2 Data. [File Transfer Protocol Text File]. Updated 9 September 2020. Accessed 13 September 2020.

Cederborg, Jenny and Snöbohm, Sara. Is there a relationship between economic growth and carbon dioxide emissions? Semantic Scholar. [PDF Document]. 2016.

Previously on Political Calculations

Global Economy Shrinks By $10 Trillion From Coronavirus Pandemic

The impact of the coronavirus pandemic that began in China continues to take a toll on the world's economy.

We can estimate that impact using the trailing twelve month average of the year over year change in the atmospheric concentration of carbon dioxide measured at the remote Mauna Loa Observatory. Here, we find that the rate at which CO₂ is increasing in the Earth's air has fallen from a trailing year average of 2.91 parts per million in December 2019 to a preliminary estimate of 2.61 parts per million in July 2020.

That change can be seen in the latest update to a chart showing the history of this measure and the timing of major economic recessions in the world since January 1960.

Trailing Twelve Month Average of Year-Over-Year Change in Parts per Million of Atmospheric Carbon Dioxide, January 1960 - July 2020

That decline of just 0.3 parts per million of carbon dioxide in the atmosphere translates to nearly $10 trillion reduction in the world's Gross Domestic Product. The default values in the following tool confirm the results of the math we have previously confirmed provides estimates of lost GDP in the right ballpark. If you're accessing this article on a site that republishes our RSS news feed, please click through to our site to access a working version of the tool.

Change in Atmospheric Carbon Dioxide
Input DataValues
Change in Carbon Dioxide in Atmosphere [Parts per Million]
World Population [billions]

Change in Amount of Carbon Dioxide Emitted into Atmosphere
Calculated ResultsValues
Carbon Dioxide Emissions [billions of Metric Tonnes]
Estimated Change in World GDP [trillions]

With an estimated loss of $9.97 trillion worth of global GDP, the reduction in the pace at which the level of carbon dioxide is changing within the atmosphere represents approximately a 7.0% decline from the International Monetary Fund's purchasing power parity estimate of $142.0 trillion for 2019.

In early June 2020, the World Bank estimated the global coronavirus pandemic would shrink the world's economy by 5.2%, which works out to be a reduction of roughly $7.4 trillion worth of international GDP.

Both these figures are of a similar order of magnitude, so our estimate is still very consistent with those of established sources. And for what it's worth, the World Bank's estimate would be based on data through May 2020, while ours is based on data through July 2020. If you're looking for a single value that captures the most current, best single estimate available today, our estimated $10 trillion loss in world GDP since the SARS-CoV-2 coronavirus made its debut in Wuhan, China is a good number to reference.

References

National Oceanographic and Atmospheric Administration. Earth System Research Laboratory. Mauna Loa Observatory CO2 Data. [File Transfer Protocol Text File]. Updated 5 August 2020. Accessed 5 August 2020.

Cederborg, Jenny and Snöbohm, Sara. Is there a relationship between economic growth and carbon dioxide emissions? Semantic Scholar. [PDF Document]. 2016.

Previously on Political Calculations


3/8/20: Ireland’s Real Surreal Economy


In recent months, I have mentioned on a number of occasions the problem of Ireland's growing GDP-GNI* gap. The gap is a partial (key, partial) measure of the extent to which official GDP overstates true extent of economic activity in Ireland.

In general terms, GDP is an estimate of the total value of all goods and services produced within a nation in a year. The problem is, it includes capital and investment inflows into the country from abroad and is also distorted by accounting manipulations by domestic and foreign companies attributing output produced elsewhere to output produced in the country. In Ireland's case, this presents a clear-cut problem. Take two examples:
  1. An aircraft leasing company from Germany registers its 'capital' - aircraft it owns - in Dublin IFSC. The value of aircraft according to the company books is EUR10 billion. Registration results in 'new investment inflow' into Ireland of EUR10 billion and all income from the leases on these aircraft is registered to Ireland, generating annual income, of, say EUR100 million. EUR 10.1 billion is added to Irish GDP in year of registration and thereafter, EUR 0.1 billion is added annually. Alas, none of these aircraft ever actually enter Ireland, not even for services. Worse, the leasing company has 1/4 employee in Ireland - a lad who flies into Dublin once a month to officially 'check mail' and 'hold meetings', plus an Irish law firm employee spending some time - say 8 hours a week - doing some paperwork for the company. Get the idea? Actual economic activity in Ireland is 12 hours/week x EUR150 per hour x usual multiplier for private expenditure = say, around EUR230,000; official GDP accounting activity is EUR100 million (in years 2 on) and EUR10.1 billion (in year 1).
  2. A tech company from the U.S. registers its Intellectual Property in Ireland to the tune of EUR10 billion and attributes EUR 2 billion annually in sales resulting from the activities involving said property from around the world into Ireland. The company employs 1,000 employees in Dublin Technology Docks. Actual economic activity in Ireland is sizeable, say EUR 7 billion. Alas, registered - via GDP - activity is multiples of that. Suppose IP value grows at 10% per annum. In year 1 of IP transfer, company contribution to GDP is EUR 2 billion + EUR 10 billion + EUR 7 billion Normal Activity. In Year 2 and onwards it is EUR 2 billion + 10%*EUR 10 billion + EUR 7 billion Normal Activity. 
Now, normal GNI calculates the total income earned by a nation's employees and contractors, etc, and businesses, including investment income, regardless of where it was earned. It also covers money received from abroad such as foreign investment and economic development aid.

So GNI does NOT fully control for (1) and (2). Hence, CSO devised a GNI* measure that allows us to strip out (1) above (the EUR 10 billion original 'investment'), while leaving smaller parts of it still accounted for (employment effects, appreciation of capital stock of EUR 10 billion, etc), but largely leaves in the distorting effects of (2).  Hence, GNI* is a better measure of actual, real activity in Ireland, but by no means perfect.

Still, GNI*-GDP gap is telling us a lot about the nature and the extent of thee MNCs-led distortion of Irish economy. Take a look at the chart next, which includes my estimates for GDP-GNI* gap for 2020 based on consensus forecasts for the GDP changes in 2020 and the indicative data on flows of international trade (MNCs-dominated vs domestic sectors) implications for potential GNI* changes:


As it says in the chart, Irish GDP figures are an imaginary number that allows us to pretend that Ireland is a super-wealthy super-duper modern economy. These figures are a mirage, and an expensive one. Our contributions to international bodies, e.g. UN, OECD et al, is based on our GDP figures, and our contributions to the EU budget are, partially, based on GNI figures. None are based on GNI*. For the purpose of 'paying our way' in global institutional frameworks, we pretend to be a Rich Auntie, the one with a Gucci purse and no pension. For the purpose of balancing our own books at home, we are, well, whatever it is that we are, given GNI*. 

This distortion is also hugely material in terms of our internal policies structuring. We use international benchmarks to compare ourselves to other countries in terms of spending on public goods and services, public investment, private entrepreneurship etc. Vast majority of these metrics use GDP as a base, not GNI*. If we spend, say EUR10K per capita on a said service, we are spending 14% of our GDP per capita on the service, but 23% of our GNI*. If, say, Finland spends 20% of its GDP per capita on the same service, we 'under-spend' compared to the Finns on the GDP basis, but 'over-spend' based on GNI* basis.

There is a serious cost to us pretending to be a richer, more developed, more advanced as an economy, than we really are. This cost involves not only higher contributions to international institutions, but also potential waste and inefficiencies in our own domestic policies analysis. Gucci purse and no pension go hand-in-hand, you know... 

Estimates of World GDP Lost to the Global Coronavirus Recession

Coronavirus Service Sign at The Doghouse in St. John's - Source: Erik Mclean via Unsplash - https://unsplash.com/photos/0zxe8y3iVa8

We are no longer alone in estimating the economic impact of the global coronavirus pandemic by measuring changes in the concentration of carbon dioxide in the Earth's atmosphere!

We learned that from a press release earlier this month from the University of Sydney, which announced a study quantifying the negative economic impact of the pandemic through 22 May 2020. Here's an overview of their findings:

The first comprehensive study of the pandemic shows consumption losses amount to more than US$3.8 trillion, triggering full-time equivalent job losses of 147 million and the biggest-ever drop in greenhouse gas emissions.

The international group of researchers, using a global and highly detailed model, found that most directly hit was the travel sector and regions of Asia, Europe, the United States, with cascading multiplier effects across the entire world economy because of globalisation.

The loss of connectivity imposed to prevent the virus spreading triggers an economic 'contagion', causing major disruptions to trade, tourism, energy and finance sectors, while easing environmental pressures most in some of the hardest-hit areas.

This study focuses on 'live' data to 22 May (with the exception of air travel, for which only a 12-month forecast exists), differing from most assessments of the economic impacts of the pandemic based on scenario analyses and/or projections - and it is the first to provide an overview of the combined economic, social and environmental impacts, including indirect effects, of the coronavirus.

How does that compare to our first back-of-the-envelope estimate, which looked to answer the question back in early April? Back then, we found "a reduction in World GDP through March 2020 of $3.988 trillion", which means our ready reckoning result has proven to be within the right order of magnitude of the findings of the world's first comprehensive study of the pandemic assembled by a team of international researchers using a global and highly detailed model!

That, of course, is the whole point of back of the envelope estimates! It's all about getting within a reasonable margin of error with the limited data available, where getting the order of magnitude right means we have a viable tool for doing that job.

But our estimate also begs a question. Our initial estimate applies through March 2020, while the University of Sydney's researchers took theirs through 22 May 2020. Let's do a quick update using our method through May 2020, the relevant data for which has been set as the default entries in the following tool. If you're accessing this article on a site that republishes our RSS news feed, you may need to click through to our site to access a working version, and possibly even to see the rest of this article!

Change in Atmospheric Carbon Dioxide
Input DataValues
Change in Carbon Dioxide in Atmosphere [Parts per Million]
World Population [billions]

Change in Amount of Carbon Dioxide Emitted into Atmosphere
Calculated ResultsValues
Carbon Dioxide Emissions [billions of Metric Tonnes]
Estimated Change in World GDP [billions]

Setting the default entry for Change in Carbon Dioxide in Atmosphere to -0.18 parts per million, which is the change in the trailing twelve month average of the year over year change in the concentration of atmospheric carbon dioxide measured at the remote Mauna Loa Observatory from December 2019 through May 2020, we find an estimated decline of roughly $6 billion in World GDP. That's 1.6 times the $3.8 billion decline for the pandemic estimated by the University of Sydney through the third week of the month, which is to say our quick estimate is still very much in the right ballpark for the order of magnitude.

If you want to update the estimate of World GDP lost to the negative economic impact caused by the coronavirus pandemic using our method through the end of June 2020, just change the -0.18 default entry to -0.24 in the tool.

References

National Oceanographic and Atmospheric Administration. Earth System Research Laboratory. Mauna Loa Observatory CO2 Data. [File Transfer Protocol Text File]. Accessed 10 July 2020.

Cederborg, Jenny and Snöbohm, Sara. Is there a relationship between economic growth and carbon dioxide emissions? Semantic Scholar.
[PDF Document]. 2016.

Larsen, K.; Pitt, H.; Larsen, J.; Herndon, W.; Houser, T.; Kolus, H.; Mohan, S.; and Wimberger, E. Taking Stock 2020: The COVID-19 Edition. Rhodium Group. [PDF Document]. 9 July 2020.

Image credit: Photo by Erik Mclean on Unsplash