US GDP Fell 9.1%, Not 33% as Social Media Claimed Post Indian Drop

Indian GDP drop of 23.9 percent has to be compared with drop of 9.1 percent in US GDP, and not 33 percent.

India’s gross domestic product (GDP) dropped 23.9 percent in the April-June quarter, revealing the extent of damage the pandemic has caused to the country’s economy.

Soon after, several users on social media claimed that the economy of the United States of America saw a contraction of nearly 33 percent and that India is not the worst-hit country.

But, the social media users actually compared India’s year-on-year numbers with US’ quarter-on-quarter numbers that were annualised.

CLAIM

S Gurumurthy, a well-known chartered accountant and political economy commentator and part of Reserve Bank of India’s Central Board, tweeted that the United States witnessed a drop of 33 percent, Japan as 27.8 percent and so on.

“It is not as if the cut is only in India. It is a global crisis which has no relation to economics,” the tweet added. However, he, later issued a correction with the correct figures and comparison.

India Today, too, in a broadcast, aired an infograph that showed US’ economy falling by 32.9 percent and India by 23.9 percent.

Regular fake news peddler Postcard News, too, shared an infograph that claimed that the economy of US contracted by 32.9 percent.

Several social media users followed suit and shared the same message on Twitter and Facebook.

But here’s what is wrong with the comparison.

WHAT WE FOUND OUT

First, let’s look at US’ GDP numbers.

According to the Bureau of Economic Analysis (BEA) , the US economy contracted by 9.1 percent in April-June quarter.

Further, as per another BEA report, the gross domestic product of US dropped at an annual rate of 31.7 percent in the same quarter of 2020.

Now, the GDP of US did shrink by nearly 32 percent but that’s the annualised figure. Confused? Let’s see what’s the catch here.

Journalist Vivek Kaul, in an article published on his website, pointed out the difference between how the GDP of India is calculated and how US GDP is calculated. He also decluttered the term ‘annual rate’ and what is meant by a drop of 31.7 percent.

Annualising v/s Year-on-Year Comparison

The figure 9.1 percent is a quarter-on-quarter comparison which is then annualised. He further explained that annualising means that the economy will continue to witness a drop of 9.1 percent on a quarterly basis, for the next three quarters.

“Hence, by this logic, on an annualised basis, the US economy contracted by close to 32% in the period April to June 2020, in comparison to January to March 2020. But this figure can’t be compared with the Indian figure,” the article added.

Now, let’s look at how the Indian GDP numbers are calculated.

In India, the comparison takes place on a year-on-year basis. So, when the government said that India’s GDP dropped by 23.9 percent in the April-June quarter in 2020, it means that this contraction is in comparison to April-June 2019.

Unlike US, we do not make a quarter-on-quarter comparison.

Hence, if Indian GDP numbers have to be compared with the US numbers, then the 23.9 percent figure should be compared with 9.1 percent.

Further, Gita Gopinath, chief economist of the Indian Monetary Fund (IMF) put out non-annualised quarter-on-quarter growth numbers for the economies. According to this data, India witnessed a drop of 25.6 percent.

In #GreatLockdown Q2 2020 GDP growth at historical lows. Graph puts G20 growth numbers on a comparable scale, quarter-on-quarter non-annualized. Should expect rebounds in Q3 but 2020 overall will see major contractions. China recovers strongly in Q2 after collapse in Q1. pic.twitter.com/OcgaZsrAD6

— Gita Gopinath (@GitaGopinath) September 2, 2020

In an article published on the Observer Research Foundation (ORF), the organisation’s Vice President Gautam Chikermane, while comparing the world figures, compares India’s 23.9 percent drop with US’ 9.5 percent contraction.

(The article refers to Organisation for Economic Co-operation and Development data, hence the figure is 9.5 and not 9.1)

So, the actual comparison looks like this:

(Source: For India: Ministry of Statistics and Programme Implementation, for United States: Bureau of Economic Analysis, for Others: Organisation for Economic Co-operation and Development)

Evidently, social media users have been wrongly comparing the annual rate of shrinking of US GDP with the year-on-year drop in GDP in case of India.

(Update: The story has been updated to add a tweet from Gita Gopinath, chief economist of the Indian Monetary Fund.)

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