Lies, damn lies and statistics - from covid to GDP data

 

In today’s blog I want to talk about the abuse of statistics in the media with a focus on UK GDP. We have got used to the media blasting us with statistics during the covid-19 pandemic, as journalists with little statistical knowledge use the data without interpreting or analysing them properly. The best example relates to the covid data, whether it is cases, hospitalisations or deaths. Much of the media has used them for their own agenda to attack the government to portray it as incompetent and the sole reason why in their eyes the UK has had a “bad pandemic”.

 

The reality which has become clearer over time is that there are a plethora of reasons for the UK’s experience including mistakes made by the UK government but also by the health authorities (NHS and PHE), by scientists and as a result of underspending on health over several decades. However there is also the health of the nation in respect of obesity and related diseases such as diabetes, cardiac disease, cancer, asthma etc with the UK considered one of the worst in Europe. Then there are non-health factors such as population density and global connectivity, where the UK and particularly London rank at the very top. And finally the data is not compatible on a country-by-country basis anyway with countries using different definitions of for example when a person dies of covid (think Spain with its very narrow definition of a covid death when compared with the UK or other European countries) or because a country is either incapable of recording all or the vast majority of deaths (think India, Mexico or Brazil or indeed most African countries) or deliberately under-records such data (think China, Russia, Iran or North Korea). The WHO estimates that up to 8 million deaths can be attributed to covid globally, which would represent a massive under-recording on the official 3.4 million death toll.

 

In the case of the UK, this under-recording is a relatively small number. In any case latest official data shows the UK does not even make the top 15 countries on deaths per capita, with many mostly East European, and some West European and Latin American countries comprising the top 15. And if we focus on excess deaths per capita which can overcome some of the data issues previously mentioned. the UK is not even in the top 25 worst performing countries for which data exists – The US, Russia, Brazil, Mexico, South Africa, Italy, Portugal and a plethora of East European and other Latin American countries are all above us!

 

However my blog today intended to concentrate on GDP and in particular in challenging the media consensus that the UK government’s “bad pandemic” was also reflected on the economy and in particular in GDP growth. One frequently still reads headlines saying that the UK economy was the worst performing country in the EU or the G7.

 

For 2020, official ONS data shows that UK GDP fell by 9.9%, which by the end of Q4 left the economy some 7.8% below its level prior to the pandemic at the end of 2019. This would represent a collapse without modern precedence – even during the Global Financial Crisis, UK GDP fell by a mere 4.3% in 2009. Moreover, Eurostat data shows us that EU GDP fell by an average 6.1% (and Eurozone GDP by 6.6%) with only Spain, down by 10.8%, worse affected than the UK. However the compilation of these statistics is not comparable as I will explain below. Once adjusted for a fairer comparison, GDP in the UK is estimated to have fallen by a more modest 7.5% leaving it in a better position than not only Spain, but a number of other EU countries including Italy, France, Greece and Croatia.

 

The need for a sizeable adjustment has arisen because of the different ways the UK and the EU treat so-called non-market output - approximately the output of the public sector. GDP, which for all its faults remains the single best summary of national economic activity, effectively measures the aggregate output of all sectors of the economy. This is easily measured in the case of the private sector where we can look at the turnover of a business. But in the public sector, particularly in health and education, it is very difficult to measure output. In the UK, the ONS overcomes this by looking at a wide range of detailed data such as the number of pupils attending school, the number of hours teaching in schools, the number of people visiting a GP, and the number of operations taking place. These measures were introduced to better measure not only output but to assess productivity in these sectors and whether the UK was getting good value for money for any increased government spending.

 

During the pandemic, schools were closed for a prolonged period and many operations were postponed. As a result we saw a big fall in the output of public services here in the UK. Indeed some 2.4 percentage points of the 9.9% fall in GDP in 2020 can be attributed to a fall in public sector output. Within public output we saw Education output fall 16.4% and Health & Social Work output by 8.2%. Nevertheless the UK data greatly exaggerated the fall in output so the ONS has been adding new indicators since to take account of pupils working from home as well as test & trace activity and covid vaccinations, although they are yet to be applied to 2020 data – only current monthly data

 

By contrast in many other countries such data is still not available or not used by national statistical agencies (despite the urging of various international institutions) so they estimate the output of such services by measuring the input ie looking at how much money was spent on them even if fewer services were provided. This is the approach taken by nearly all EU countries and meant we did not see the dip in the output of public services that genuinely did happen during 2020 throughout most of the EU.

 

Another useful measure to use that largely overcomes these intra-country comparison issues is nominal GDP growth, although they miss important volume movements seen in real GDP data. Nevertheless, we can see for the G7, the UK GDP fall is in fact less than in Germany, Italy and Canada, albeit higher than in France. In the US and Japan where the lockdowns were far less severe, overall economic activity was affected much less. So the bottom line is that UK GDP was badly affected by the pandemic particularly as our lockdown was notably long and tight, but the fall was not the worst by any means in the EU or G7.

 

In my next blog I will talk about UK GDP in 2021 and the expected sharp bounce-back in growth which is likely to be the fastest in the EU or the G7.