The world is set for its best recovery from 80 years of declineAccording to the World Bank, it is growing at the fastest rate since the 1970s. While a strong recovery is welcome, such rapid growth is also a cautionary tale for interpreting economic statistics. The record growth rates will mainly reflect not the progress of this year, but rather the catastrophe of the previous year.
Economic statistics should always be treated carefully. Economies change as they grow, և methodological shifts greatly affect indicators, but the coronavirus epidemic complicates the interpretation of this year’s data. While annual growth rates are usually the best way to improve or worsen living standards, they are sure to explode this year as reopened economies contrast with closed ones.
What economists call “base effects”. The way you start measuring how fast something is growing will probably play as big a role in determining the data as the actual economic performance. This is a purely mathematical artifact, rather than a faster growth rate after a fall.
Extremely high annual growth rates – The International Monetary Fund predicts that France will be the fastest growing country in the G7 rich countries in 2021. In the process, it will partly reflect the misguided experience of blocking. The fact that the Japanese aphonia is at the bottom of the table shows that it did a much better job than the Europeans in controlling the virus, so it experienced a much smaller decline. Measuring from this higher “base” reduces growth. Given the stage, the French economy would have done much worse.
The best way to assess comparative performance this year is not to compare it to the previous one, but to compare it to the previous one. The statistics with that indicator will look very different. France will be down and Japan will be closer. Despite the fastest growth rate in almost half a century, the World Bank estimates that the world economy will still be 2% smaller by the end of 2021 than it was in 2019, compared to how the economy would grow without an epidemic, and the picture will look even worse.
Such problems will also become unfettered attempts to find out whether economies are “overheating”. Wage growth և inflation data that central bankers և investors closely monitor for any sign of price pressure will be skewed by the base effects. a US inflation rate increases by 5% In May of this year, it is partially lower than the decline in the consumer price index in the same month last year.
Such distortions also affect the labor market. According to Gertyan Vlige, a member of the Bank of England Monetary Policy Committee pointed out:, even if wages in the British private sector remain stable over the next year, their annual growth rate will rise to 7% before falling to a more normal level. “Composition effects”, how the base effects affect the indicators. During the epidemic, low-paid workers lost their jobs disproportionately, raising their average wages mathematically, but not in a way that would improve their living standards.
At the moment, the economic statistics of the rich world are distorted compared to the worst months of the epidemic. Probably, the existence of political arguments is inevitable. Many people think more about choosing the data that proves their point of view, not ignoring the contempts, but there is no need to mislead central bankers or professional investors. A thorough study of the data to find out what it means is always sensible, but this year it is more important than ever.