Covid-19 and Global Economies – Analyzing March’20 Performance

Global economy faces the specter of entering into a recession with major  economies recording sharp decline during March’20. An economy is said to have entered into recession if its GDP declines for two consecutive quarters. Yet, Q1’20 was milder and countries must brace for even bigger shock in the current quarter. Here is a look at the details based on preliminary data for US, EU and China accounting for two-thirds of global GDP.  

As per the data released by US Bureau of Economic Analysis (BEA), US economy shrank by as much as 4.8% y-o-y during March’20. This contrasts with growth of over 2.2% during last four quarters, implying a sharp swing of 7%. Total GDP stood at over 21 trillion dollars (current prices) in 2019, nearly seven times India’s GDP.

GDP comprises of three main items when calculated from expenditure side – private consumption expenditure (PCE), investments and government expenditure. Covid-19 had maximum impact on PCE which fell by sharp 7.6%. US GDP has a predominance of PCE which accounts for close to 70% of total GDP (against about 56% in India). Within PCE, service sector expenditure holds greater sway with 44% of total GDP, which declined by over 10%. Interestingly, medical services recorded decline of over 10% which looks surprising. A reason could be suspension of other high-cost services such as surgeries, routine check-up etc. PCE, goods declined by only 1.3% which again, is quite surprising and implies a rather relaxed lockdown, if at all, there was any. However, the data is preliminary and subject to revision.

Investments which form just 17% of GDP (against about 30% in India), also fell quite sharply by 5.6%. However, investments were going through a stress having declined by 4.4% during previous three quarters also. Government expenditure, totalling nearly $3.7 trillion, rose by 0.7%. The figure should witness significant jump in the current quarter with US government having received the sanction to increase its budget by as much as $2 trillion. US government has a much bigger share in GDP at 18% against only about 10% in India.

In comparison with US, EU witnessed slightly lower decline at 3.3%, even though Covid-19 had begun to spread here few weeks before US. EU had total GDP of over $18 trillion (current prices) in 2019. In contrast with US, PCE has a share of only about 54% with investments and government expenditure accounting for the rest equally. EU has released aggregate data only and detailed data would be released by 15th May.

China, the third major region and the origin of Covid-19, recorded decline of 6.8% in its GDP. China had a GDP of close to $14 trillion in 2019. While the worst is almost over for the country, its exports have significant influence on the GDP. How this evolves, both in the near-term and in the longer-term, as a result of Covid-19 spread would be interesting to watch out for. Unlike US and EU, China’s GDP classification gives greater focus to production side data with manufacturing sector declining by sharp 10%. The sector has a share of about 26% in GDP and is, essentially, the growth engine of the economy. Primary sector, namely agriculture, forestry etc, fell by only 2.8% whereas services sector declined by 5.2%.

From expenditure side, the decline is sharper with private household expenditure declining by as much as 12.5%. Within this, except for food group which rose by 2.1%, all other groups recorded sharp decline. Interestingly, medical expenditure decline by 10% which looks perplexing. A reason could be that most Covid-19 related expenditure has been taken care of by the government and therefore, doesn’t add to private expenses.


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