Next month it will likely be official. Figures will present the primary estimate of how a lot the UK economic system shrank by in 2020. Relying on what occurred when lockdown restrictions have been briefly eased in December, the chances are high that there was a fall of about 10%.
That would be the sign for all kinds of comparisons. Germany, which has already launched information, contracted by 5% final 12 months. Numbers for the US should not but out however will in all probability present the world’s greatest economic system suffered a 4%-5% drop in gross home product. China grew by about 2%.
Traditionally, 2020 was a stinker for the UK – the worst 12 months since 1709, the period of Isaac Newton, the Duke of Marlborough and Daniel Defoe. Be prepared for photos of a frozen Thames for example the 15% collapse of the economic system attributable to the Great Frost.
Does any of this matter? Trying again to the early 18th century is enjoyable, nevertheless it was a unique world again then. The UK had a inhabitants of 5 million in 1709 and the economic system was largely agrarian. A ten% contraction in GDP in 2020 successfully wipes out a decade and a half of development. A 15% drop in 1709 meant individuals starved to dying.
There should not many memorable speeches about gross home product, however that could be as a result of the one made by Bobby Kennedy whereas on the marketing campaign path in 1968 stated all of it. As Kennedy identified, the manufacturing of napalm and nuclear warheads counted in the direction of GDP, however the well being of American kids and the enjoyment of their play didn’t.
“It doesn’t embrace the fantastic thing about our poetry or the power of our marriages, the intelligence of our public debate or the integrity of our public officers.
“It measures neither our wit nor our braveness, neither our knowledge nor our studying, neither our compassion nor our devotion to our nation. It measures the whole lot briefly, besides that which makes life worthwhile. And it could possibly inform us the whole lot about America besides why we’re proud that we’re People.”
These phrases have been true in 1968 they usually resonate much more strongly right this moment. Measured by GDP, the US is the world’s richest nation. Measured by GDP per head, it is among the richest. Measured in different methods, in life expectancy for instance, the US can be a good distance down the worldwide league tables. And as current occasions have proven all too clearly, it’s not a rustic comfortable with itself.
Over time, individuals get smarter and discover higher methods of doing issues. When economists speak about productiveness, they imply that extra items and providers might be delivered with much less effort. International locations reap a productiveness dividend, which might be taken in numerous methods: they will produce the identical quantity of stuff and have extra leisure time, or they will work the identical variety of hours and produce extra. Most European nations have tended to go for the primary possibility, the US for the second. Britain falls someplace between the 2.
GDP measures these actions for which cash adjustments fingers or for which a financial worth might be connected. Paid childcare is included, however unpaid childcare by members of the family or mates isn’t. If the NHS wanted to do extra operations as a result of Britain was changing into a much less wholesome nation, that will add to GDP. If the variety of operations went down as a result of the general public exercised extra, it will cut back GDP.
All of which brings us again to Bobby Kennedy. What the GDP figures inform us is that the economic system collapsed between late February and April, then started a restoration that picked up tempo through the late spring and early summer season. From then onwards, the tempo of development slackened as restrictions have been tightened, culminating in a fresh fall in nationwide output of two.6% in November.
However as a purely quantitative measure, the GDP figures inform us nothing in regards to the high quality of development. To take one instance, retail gross sales are actually greater than they have been earlier than the pandemic began though non-essential shops have been shut on and off for a lot of the previous 12 months. We all know that spending has migrated from the excessive avenue and retail parks to on-line; what we don’t know is whether or not the products being delivered by courier are actually wished or whether or not individuals are so depressing that they’re binge-buying.
At current, there may be a lot hypothesis about whether or not the UK will expertise a double-dip recession – two separate episodes wherein GDP falls for 2 or extra quarters in succession. That is in all probability not going to occur, however even when it did, it will matter a lot lower than among the injury attributable to the pandemic that’s more durable to quantify.
The collapse in GDP is big, however – except there are contemporary waves of the pandemic – solely short-term. As soon as the restrictions are lifted, exercise will decide up. If issues go nicely, all the bottom misplaced in 2020 will likely be made up by 2022. However how do you measure the impression of the colleges being shut on the life probabilities of a kid from a deprived household? What value the toll on psychological well being of individuals confined to their properties and unable to see family and friends for months on finish? Is it attainable to place a financial worth on loneliness and melancholy?
The truth that lately statisticians have tried to evaluate progress in numerous methods speaks volumes in regards to the limitations of GDP as a yardstick. There are issues that may be simply measured and issues that may’t. The truth that GDP fell by 10% final 12 months tells us one thing, however not the whole lot.