Why covid-19 didn’t hurt rich economies as badly as expected

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mODERN CHURCH statistics is thought of as a work in progress. As new information becomes available to national statistics offices they update and revise previously published figures. The picture of the economy is only slowly coming into focus, more like an old fashioned polaroid than a snap on a modern smartphone. Revisions to older data are an integral part of the process and rarely make headlines. But in the last two months revisions in Britain and Italy have come close to rewriting recent economic history. What happen?

Data released in Britain in 2022 and early 2023 showed the country as the only G7 economies that by the end of 2021 had not yet recovered their pre-pandemic output levels. But after revisions to the 2020 and 2021 figures, in September GDP it was found to be 0.6% above its pre-covid size rather than 1.2% below it. The Office for National Statistics added almost 2% to their estimate of national income and changed Britain’s economic performance from a global laggard to something more respectable. Also in September the Italian statistics office improved its growth estimate in 2021, at current prices, from 7% to 8.3%. That wasn’t enough to justify the room they had hoped to give the government for tax cuts, but it was still a major overhaul.

In both countries the total volume of revisions is partly explained by the volume of inward movements GDP in almost all economies in 2020 and 2021. The 2020 lockdowns caused output to decline at a pace not seen in decades and the removal of restrictions in 2021 triggered a strong rebound in most places. Standard to proportional revisions of large inflow grooves GDP add up to large numbers.

These revisions are guided by what statisticians call input-output tables (IOT). The initial estimates are based on partial data and on key revenue figures reported by companies. As more detailed data becomes available, statisticians can use it IOT to measure the inputs and outputs of each sector more precisely. That gives them a better view of how profit margins have evolved over time. Margins are now thought to be holding up better than once expected, leading to higher estimates of profits, revenue and thus overall GDP.

Over the coming months more rich countries will be able to update their data as a result of better information. Further reviews will follow. Changes of 1-2% in the estimated level of national output may grab the headlines, but the underlying economic picture remains unchanged. The broad story is that 2020, while still terrible, was not as economically disastrous as expected and the recovery in 2021 was a little stronger than it first appeared.

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