While the Indian economy recorded sharp decline in GDP amidst the pandemic, it is not alone. Most of the economies across the world have recorded significant decline in their GDP. However, that may not still be a cause of worry and the biggest challenge at the moment is to get out of the pandemic. The demand should bounce back, possibly with an even greater thrust, once the fear and restrictions caused due to pandemic is over. Here is a look at some of the details.
USA, the largest economy in the world with a size of $21.4 trillion, recorded a decline of 9.1% y-o-y for the quarter ended June’20. (USA and certain other countries report data on annualized basis which extrapolates the actual decline to the next three quarters and compares with previous year. On annualised basis, the decline for US is 31.7% but is not comparable with Indian reporting system). Of the three expenditure heads, private consumption fell by 10.5%, whereas investments dropped more sharply, by 16.8%. (Investments for India fell by as much as 47%!). Investments, in fact, have been recording much higher decline across the globe. For USA, it was the third quarter of decline in investments. Interestingly, healthcare spends have declined, although marginally by 2%, most likely, a result of decline in other medical procedures and consultations. Government came in with partial rescue, recording a growth of 2.1%. Surprisingly, this is not the highest growth in government expenditure which grew by as much as 3% in Dec’19 quarter. Government’s deficit has risen by a sharp $5.6 trillion (over three times India’s GDP!) over last six months as a result of the continued increase in expenditure.
Euro area, the other major block of developed nations, recorded decline of 15% y-o-y as per Eurostat. This is the second consecutive quarter of decline for EU, having recorded decline of 3.1% in March’20 quarter. European Union comprises of several grouping with Euro area or EU19 comprising of initial block of 19 countries where Euro serves as the currency. The other major group or EU27 comprises of 27 countries which are not completely integrated. EU19 had combined GDP of $14.1 trillion in 2019 whereas EY27 had about $16.4 tr. The severity of the decline for EU is reflected in the fact that, as a result of the decline, total GDP of EU goes back to level last seen before 2010. Among the major countries, while Germany recorded decline of 11.7%, France was down 19%. However, detailed data for Euro area is not yet available.
Japan, the third largest economy at $5.15 tr, faced the same fate with the economy shrinking by 9.9% y-o-y to a level last recorded in June’11. The decline was led by private consumption which fell by 11%. Unlike other economies, the decline in investment was lower at 3.1%. This could be due to the fact that investments are not a driving force in Japan with significant excess capacity across most sector. Share of investments in GDP has been coming down over the years; from close to 30% to 24% now. Interestingly, government expenditure has risen only marginally by 1%, a result of already high government debt. Govt debt to GDP ratio for Japan stands at close to 250%, possibly the largest in the world. For UK, already amidst turbulence caused due to Brexit, it is a double whammy. UK, recorded decline of 21.7% YoY, on the back of a decline of 1.7% in March. While private consumption fell by 23.1%, investments fell by 25.5%. Even UK’s GDP absolute level goes back to pre-2010 level.
While the world is reeling under the impact of Covid-19, ironically, China, where it all began, has come out of the worst and posted a growth of 3.2%. The country, second largest with GDP of over $14 trillion, had recorded a decline in the first quarter of 6.8% but is back to business now!
Note – GDP reporting format across the world varies with headlines being either y-o-y, q-o-q or annualized. Format used here y-o-y, as used in India.