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Britain's GDP collapses, but it is V-shaped

The basic trade-off

The essential idea of ​​this disadvantage was that by killing the economy for a time we would save lives. This does not appear to be the case in the UK. For it has the worst death rate for COVID-19:

  Covid (Deaths per 1

00,000 from Johns Hopkins)

There is some controversy as to whether this is quite right given the way death is attributed.

But the point is that this does not in traditional narrative agree with this:

 GDP (Comparative GDP loss from the Office for National Statistics)

Yes, I know, this looks more as politics rather than investment economics. But it tells us something important that we should keep in mind in the future. It is not true that there is a right balance between death and lockdowns. So future waves may not be associated with additional locks. On the grounds that we can not see any obvious signs that the lockdowns we have had have worked. For there is not much connection between the depth of the fall in GDP induced by lockdown and death rates.

And then of course there is always the example of Sweden, which has not had an ordained lockdown at all.

We can at least hope that future policy makers will understand all this.


Despite the fact that the quarterly GDP looks pretty awful:


(quarterly GDP from the Office for National Statistics)

This is of course a recession, we have two quarters on row in falling GDP. It is also quite misleading as we have not had 6 months of falling GDP, far from horribly falling GDP than recovery.

We can see this with the monthly figures:


(Monthly GDP from the Office for National Statistics)

As we see it is a rapid recovery. Sure, we're still good at the starting point, but that's just one of the two things we're interested in. The other is, of course, the speed of recovery.

And now the kicker.

As I & # 39; We have often said that economic femur is really linked to the economic hip bone. If something looks out of place, if one number does not work compared to others, it is necessary to investigate why. For everything must add up, it must make sense.

Why has Britain made it worse? Because the Office for National Statistics calculates the effects differently than everyone else. I would probably argue that they also do it right in a theoretical sense. But at the expense of comparability – we can not compare UK figures with elsewhere.

Without diving too deeply into the theory of GDP. It is very difficult to measure the authorities. What produces a bureaucracy? OK, civilization and rules and structure maybe, but what's the value of it? So we measure the rest of the economy at the value, in market prices, of what is produced. We can not do it with the government, so we do not.

Instead, government contributions to GDP are the cost of having government, not the value of output.

ONS has changed this. For example, education. Most schools have been closed – other than for the children of key workers – so production has been close to nothing. But under the normal GDP rules, they have cost the same to operate – all teachers are still paid. Then other countries have registered education as part of GDP as normal. ONS, for the United Kingdom, has at least tried to register production as the number of children educated, obviously a much smaller number. And they have done this across the authorities offering services.

The reason why the UK has a much larger fall in GDP is because ONS has registered production differently than everyone else. This, of course, immediately reverses once – with the example of education – we reopen schools. This explains both the depth of the decline and also increases the speed of the upcoming recovery.

My view

I have long been of the opinion that we will get a rapid recovery from this recession, but how deep it may be. The basic insight is that the recession where we know the cause is usually short. Because if we know the cause, then we stop doing it, the recovery will be fast.

We know that the recession is caused by blockade, when we first stop locking down the recession, will largely be gone.

The Investor View

In a way, all of this can largely be seen as intellectual interest. Or even politically – who do we blame for all this? But it is of crucial interest to us as investors.

What has happened may all be unfortunate and all that, but it is irrelevant. What we need to know is what is going to happen. It's much better than the gloomy story of recent times. As the Bank of England has said, they are seeing a rapid, V-shaped, recovery from these recent journeys. Something we see.

This means that the stock indices are about the right price. At the current levels, they assume relatively rapid improvement. Proof that this is arriving may well mean a market swing. Evidence that continues to support the idea will not change prices much.

We thus have no specific investment guidance from macroeconomic figures at present. We are back to having to look at specific situations and companies.

Disclosure: I / we have no positions in any of the aforementioned shares, and have no plans to take up any positions within the next 72 hours. You wrote this article yourself, and it expresses my own opinions. I do not receive compensation for it (other than from Seeking Alpha). I have no business relationship with any company mentioned in this article.

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