ONS warns on comparing international GDP figures

ONS warns on comparing international GDP figures

February 1, 2021

Has Britain REALLY suffered the worst economic hit from Covid? ONS says international GDP figures might not be comparable and on some measures the UK has done better than Germany

  • ONS produced analysis of international GDP figures during coronavirus crisis
  • Experts highlighted the differences in the way public spending is accounted for
  • In UK ‘output’ is measured but many other countries use expenditure levels
  • Adjustments suggest UK still fared badly by comparison but gap was not as wide 

Statistics experts today raised questions over whether the UK has really been the worst hit major economy during coronavirus.

Analysis from the government’s watchdog pointed out that many other countries in the G7 do not compile GDP figures in the same way.    

After Rishi Sunak complained that the data do not show the true picture, the ONS said the downturn could be partly explained by the way public spending is accounted for. 

Many other states just consider the amount of spending, but the UK assesses ‘output’ – and metrics such as GP appointments and school hours have been hammered during the pandemic. 

Even adjusting for this difference the ONS still found the UK suffered the biggest downturn in the G7, although the levels were much closer. 

Stripping out the impact of inflation altogether dramatically changed the picture, suggesting that the economy had held up better than Germany – although typically GDP is measured in real terms. 

The ONS proposed a number of other factors that might help to explain why the economic figures had been worse for the UK.

Social spending, such as eating out and holidays, is more dominant than in other countries.

Stripping out the impact of inflation altogether dramatically changed the picture, suggesting that the economy had held up better than Germany – although typically GDP is measured in real terms

Adjusting for the different way public spending is accounted for in the UK, the ONS still found it suffered the biggest downturn in the G7, but the levels were much closer

Britain has had one of the world’s highest COVID-19 mortality rates, another factor seen as weighing on the economy.

In nominal terms – unadjusted for inflation – the collapse in economic output seen in Britain was ‘broadly comparable’ to other G7 countries, and not as bad the drop seen in Canada, Italy or Germany, the ONS said.

The UK shrank 3.4 per cent between the last quarter of 2019 and the third quarter of 2020, rather than the 8.6 per cent on the standard figures.  

However, international comparisons of economic performance are typically inflation-adjusted.

In a blog. ONS head of GDP Rob Kent-Smith said for the private sector output can be measured ‘simply by looking at turnover of a business’. 

‘But this doesn’t work in the public sector where money often doesn’t directly change hands,’ he wrote. 

‘Instead, we use a wide range of detailed data from government such as how many people have seen a GP, how many operations have taken place and the number of pupils receiving education. 

‘With schools closed and many non-urgent procedures delayed, this means we recorded a big fall in the output of UK public services during the early stages of the pandemic.

‘However, in other countries these data are not necessarily readily available, and so they simply estimate the output of their public services by looking at how much money was spent on them, or the hours worked by those providing them. 

‘As spending has been relatively unchanged, these countries have not recorded the same large falls in the output of their public services.’

Mr Kent-Smith said for cash estimates of GDP, where the public services element is based on the money spent, the UK’s slump was ‘broadly comparable’ to other G7 countries – and smaller than in Canada, Italy and Germany. 

‘With countries taking different approaches it is hard to make comparisons during this time, but one helpful approach is to look at GDP of the UK and other major countries, excluding public services. 

‘While this made little difference to the fall in UK GDP – as the fall in the output of our public services was very similar to the overall contraction in the economy – for other countries it made the falls in their GDP look substantially larger. 

‘In Germany, for example, their GDP fell by an additional two percentage points through the crisis, once their public services were removed from the calculation. 

‘However, in this approach the fall in UK GDP is still one of the largest in the G7.’

He said that in the future the ONS hopes to be able to make ‘even more sophisticated comparisons’.

Last week the IMF slashed estimates for the British economy by 1.4 percentage points from its October figure, as well as predicting more gloom for European countries

Coronavirus is thought to have inflicted the worst hit to UK GDP since the Great Frost of 1709 

The ONS also said the measurement factors which weighed particularly on the UK’s economic data during the second quarter of 2020 ought to have been seen in reverse in a rebound in the third quarter.

But that did not fully transpire, with France reporting a bigger upturn that quarter.

Revised data which will be published in the future by Britain and other countries could further alter the picture, the ONS said.  

Last week the  IMF downgraded its forecast for UK growth this year to 4.5 per cent as renewed coronavirus lockdowns smother the recovery.

The respected body slashed estimates for the British economy by 1.4 percentage points from its October figure, as well as predicting more gloom for European countries.

However, it said the rollout of vaccines should mean a stronger performance globally, with the US and Japan in a better position than expected.

In percentage terms growth will be high by historical standards over the coming years, but only because the scale of the downturn last year was so huge that the economy is starting from a lower base. 

The IMF estimates the UK was the worst-hit of the world’s seven largest advanced economies last year, suffering a 10 per cent decline. 

Only Spain – which is outside the top seven – suffered more with a 11.1 per cent fall

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