Which Major Economy is Withstanding the Pandemic Best?

October 30, 2020

Although these are very early days for ranking economies according to their resilience against the Covid-19 pandemic, the recent release of third-quarter GDP data for a number of countries makes a preliminary stab at that question now possible. The United States,

Neither the United States nor Euroland achieved a full-V pattern, but China, Hong Kong, and Taiwan did. While the U.S. and Ezone economies rebounded sharply in the third quarter from second-quarter pandemic-related plunges in activity, first-quarter GDP levels were not quite restored.

A technical note is here warranted. As reported, U.S. growth is expressed in annualized terms, while other countries generally just report the straight percentage change between adjacent quarters. Standardization is most easily achieved by handling U.S. growth in the same manner that other statistical agencies treat quarterly growth elsewhere. Instead of a 33.1% annualized rise of U.S. GDP between 2Q and 3Q, GDP simply went up 7.4% in 3Q, and it fell 9.0% in 2Q rather than 31.4% at annualized rate.

The 7.4% U.S. GDP rise in the third quarter was significantly less that advances of 18.2% in France, 16.7% in Spain, 16.1% in Italy, 8.2% in Germany, or 12.7% in the composite euro-using area. A truer measure of resilience can be ascertained not by the strength of the good quarter alone but rather than by measuring the third-quarter level against the first quarter level. Here, one finds an incomplete recovery in the United States, since 3Q is still 2.2% less than the level in the first quarter. There was a similar shortfall of 2.4% in Germany’s case, and Spanish GDP last quarter was still 4.1% less than the level two quarters earlier. InĀ  the Czech Republic, which is part of the EU but doesn’t use the euro, GDP last quarter likewise remained 3.0% under the 1Q level in spite of a 6.2% advance in 3Q alone. On the other hand, French and Italian GDP had moved above first-quarter levels by 2.0% and 1.0%, respectively, and Euroland as a whole had only a 0.6% downward deviation of GDP last quarter compared to its first-quarter level.

Even better, two countries in Asia (Taiwan and Hong Kong) experienced positive net GDP growth of 3.0% and 2.9% between the first and third quarters of this year. In Hong Kong’s case, however, year-on-year growth recorded its fifth successive negative result. Even before the pandemic, Hong Kong was reeling from street unrest and being victimized by U.S.-Sino trade tensions. That said, Hong Kong’s contraction of real GDP in the year through 3Q20, at 3.4%, was only a half percentage point greater than the 2.9% concurrent drop in U.S. real GDP. Taiwanese GDP advanced 3.33% in the four quarters ending 3Q20.

Because the pandemic and accompanying lockdown of activities hit China one quarter sooner than other places, China needs to be treated differently. To wit, one needs to focus on the movement of GDP between the final quarter of 2019 and the second quarter of 2020, rather than growth between 1Q20 and 3Q20. When that is done, we find that real GDP plunged 10.0% in the first quarter but ricocheted 11.5% in the second quarter, resulting in a net advance of 0.4% between 4Q19 and 2Q20. Up to this point, it appears that Euroland weathered the storm slightly better than the United States but that Asia by and large did even better.

Looking ahead primarily mandates that one watch the Covid case data because such lead effects on economic activity. Europe is currently experiencing a second wave of the virus that has forced many non-essential workers to stand down. In the United States, the first wave never really ended. The trend in daily cases hasn’t yet subsided to levels low enough to declare the initial wave done. Rather, there have been two periods when the 7-day average of new cases subsided partly. But the 7-day average currently is already higher than the second cresting point, which in turn was above the peak of the first upsurge. In addition to higher highs, the successive lulls were also upward sloping. Asia, in contrast, has been able to contain Covid more successfully than either Europe or the United States, and that probably portends less fragile recoveries of their economies during the current quarter and into 2021.

As noted at the start of this piece, these are very early days. Third quarter GDP data haven’t even been reported for several key economies like Japan, Australia or Canada. The information available so far belies the assertion that the U.S. economy is in the midst of the greatest run ever, let alone that it is leading the world in this era of the Covid pandemic.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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