Why Claims Of US, Canada GDP Falling More Than India Are Misleading

Social media posts suggesting that the US, Canadian and the Japanese economy have contracted more than the Indian economy are false. These posts are comparing these economies' annualised contraction to India's recently released year-on-year contraction.

The aim of these comparisons were to show that while India did witness an economic contraction, there were some economies who had it even worse. This comparison is misleading, as these countries report annulised numbers, which are quarterly figures compounded to show how much the economy would grow if the same growth rate applied for the full year. India reports its quarterly figures year-on-year: how the quarter ending June 2020 compares to the same quarter in 2019.

India's economy declined by 23.9% for the quarter ending June this year when compared the same quarter in 2019, according to data released on August 31, and the claims are comparing this fall to the US' 32.9%, Canada's 38.7% and Japan's 28.7% annualised declines.

This fall is India's worst economic decline ever, and India joins a number of countries witnessing an economic contraction due to health restrictions imposed earlier in 2020 as a result of the ongoing COVID-19 pandemic. Since then, social media users have thrown up a flurry of comparisons of economic data. These comparisons, taking various forms, aim to peg this economic decline with the rest of the world to put this figure into perspective.

Also Read:India's GDP Shrinks -23.9% in Q1 In Worst Ever Decline

BOOM received the message on its helpline (7700906588) in Marathi.

On social media, S Gurumurthy, a director with the Reserve Bank of India shared the claim with a number of annualised figures. However, he later issued a correction down the same thread.

A graphic by Business Today also went viral, which compared quarterly drops to a yearly drop in India. Users of social media later morphed the image to show the US' larger annualised figure upfront. Business Today however put out a graphic that makes a year on year comparison in another story.

Various images and posts too have been ciruclating on social media with these claims. One is by Postcard News, known for peddling disinformation. It has a reference to Business Today's graphic.

FactCheck

These are annualised figures. Annualisation is a numerical exercise carried out for ease of comparison of figures.

The US Bureau of Economic Analysis (BEA) states:

"For ease of comparison, BEA publishes percent changes in most quarterly estimates at annual rates". It also adds "A quarterly percent change at an annual rate shows what the percent change would be if the quarterly rate continued for four quarters. It is computed by compounding the quarterly rate for four quarters."

The BEA has also given its formula to calculated an annualised rate; and how it differs from calculating growth at a non-annualised rate. The calculation, and the outline of the process can be viewed here. Author and economist Vivek Kaul has also provided a working of the math of an annualisation of data. It can be read here.

You can annualise too! If an economy starts at $100, here's how it reaches $68.3 (thus showing an annualised 31.7% decline) four quarters later with the US' decline of 9.1%.

The quarterly non-annualised figures of

1. The US are at 9.1% (BEA)
   
2. Canada are at 11.5% (Statistics Canada)
   
3. Japan are at 7.8% (Government of Japan)

The quarterly contractions of other economies mentioned are:

1. France at -13.8% (Insee
   )
   
2. UK at -20.4% (Office of National Statistics)
   
3. Italy at -12.8% (ISTAT)
   
4. Germany at -10.1% (Destatis)
   

The posts have used the US showing a decline of 32.9% annualised quarterly (or a 9.5% quarterly decline non-annualised) are according to the BEA's July release (their advanced estimates). BOOM is using data from the BEA's 'second estimate' - showing a 31.7% quarterly decline (annualised) or a 9.1% quarterly decline (non-annualised) released on August 27. These data points can be found with the BEA here.

Also Read:BJP Tweets IMF's April GDP Estimate Which Was Lowered In June

Which figures can be compared to India?

The above mentioned numbers are quarterly, and show an economic decline in the second quarter of 2020 (namely April - June, which is the first quarter for India).

However, since India has reported its GDP contraction for the quarter ending in June over the same quarter in 2019, the following year-on-year data in the same time period has been released across various economies

The sources for each of these countries is as follows:

1. UK (ONS)
   
2. Italy (ISTAT)
   
3. Germany (Destatis)
   
4. United States (BEA data; triggers download)
   
5. France (Insee)
   
6. Canada (CEIC Data)
   
7. Japan(CEIC Data)
   
8. India (MOSPI)

Here's reporting on the impact of the GDP slump by BOOM's Govindraj Ethiraj with CRISIL's chief economist DK Joshi.