Fake News & Trivia on GDP growth rates

Fake News and Biased Journalism are both undeniable truths of these troubled times we live in. Haven’t we all complained after getting a migraine from the incessant screaming that takes place on the 9pm news on TV? As a centrist, I often find myself at odds with both the Left and the Right depending on what issue we’re discussing for the day. I’ve given up on Broadcast news and have settled for voices on the internet (Youtube!) that atleast make an attempt to be reasonable even if we’re at odds on a few hot topics.

India’s GDP fell an astounding 23.9% in the second quarter of calendar year 2020 compared to the quarter for the preceding year. It isn’t particularly unimaginable given the fact that we had what is being anecdotally described as the strictest lockdown in the world. But it is clearly a significant miss from what the consensus average estimate was: -19% according to data compiled by Bloomberg. I think this is news that has startled even folks that generally don’t follow financial news (such as my Mom). That TV news doesn’t think this merits a proper “debate” on prime time is a topic I wouldn’t dare get into for the fear of #justiceforssr warriors.

However, due to an interesting series of small events, I have ended up writing this article. Let me elaborate.  I’ve become an avid LinkedIn user. It’s not that I’m actively searching for a new job. But I feel it’s the last place left where people atleast pretend to behave on the internet and have civil intellectual discourse to avoid tarnishing their reputations. If only Twitter was this utopia! I scrolled through my feed where a Business Today news article popped up with this graph prominently featured. This graph had already been discussed earlier in the day on a WhatsApp group with my colleagues.

At first glance, one might interpret through this chart that India is the worst affected nation by CV-19 lockdown. How successful these lockdowns were for us w.r.t. containing the spread & whether they were essential at all is a debate that I’m sure has reasonable and valid arguments on both sides.

I guess you wouldn’t be reading this had I not clicked the accompanying twitter link! Twitter is a vile place. Sometimes when I’m having a bad day, I read troll comments just to make myself feel better.

Pivoting back to the comments on this Business Today post on twitter. It had several comments that screamed Fake News & put up an alternate chart claiming the Left Liberals have stooped to manipulating statistical facts just to suit & propagate further their narrative of Modi’s mismanagement of our economy.

Had these been simpler times, where Facebook didn’t interfere with elections and where it flagged fake news as fake news and not called it “freedom of speech”, my mind would have just discarded these comments as venom spewed by idiots who don’t know what they’re talking about. I’d obviously rely on the magazine that tweeted the chart. Business Today is a renowned financial brand after-all.

But we clearly aren’t living in this ideal fairy tale and hence at 2am in the night I decided to take over this investigation of who’s right and who isn’t. I messaged on WhatsApp the 2 economists I have access to Nikita Talnikar & Preksha Jain, two of my colleagues, whilst conveniently ignoring the fact that its 2 am! But I guess some liberties are allowed with friends.

After a long day at work, here’s some stuff I learnt about the GDP growth rates:

  • The most popular & logical was of looking at the GDP growth rates is YoY (Year on Year). India’s GDP fell 23.9% for 2Q in CY 2020 when compared to 2Q in PY 2019 in real terms. This also happens to be the only way I used to think about GDP growth rates.
  • There’s a QoQ ie Quarter on Quarter perspective aka sequential growth which is 2Q CY 2020 vs. 1Q CY 2020. This is not as popular compared to YoY but I’m sure in Q3 CY 2020 most management presentations will be talking about how their businesses did better vs. 2Q CY 2020 even though it’ll be down YoY vs. 3Q PY 2019.
  • There’s another way of looking at growth i.e QoQ on annualized basis, which was news to me. I wouldn’t blame myself: Economics wasn’t my core subject.
  • What we do here is compare 2Q CY 2020 with 1Q CY 2020 and then annualize to see what the growth would be assuming this trend between the two quarters would continue for a year. For those mathematically inclined: (2Q 2020 Real GDP/1Q 2020 Real GDP)^(4)-1
  • This is usually done when there’s seasonally adjusted data and one would like to understand growth rates in the annual sense. However, this is more useful in a “normal” year.
  • No sane person would call 2020 a “normal” year. What happened in Q2 if annualized would paint a doomsday picture that isn’t what’s expected to materialize.
  • Using US as an example here for simplicity. The US Govt Stats office reports their real GDP growth rate data both in this QoQ annualized & YoY format. So, for 2Q CY 2020 the American economy shrank c. 9.1% YoY basis (i.e vs. 2Q PY 2019) and c. 32.9% on a QoQ annualized basis.
  • Ideally, looking at GDP growth rates for a single country over time in isolation to draw conclusions about that country would be desirable. But practically speaking, we often have to compare one country against the other and thus these growth rates, despite the fact that they are computed based on data that is collected in vastly different and dynamic ways by governments across the world. That said, the basic expectation is that we atleast compare on a common platform: YoY or QoQ annualized basis.
  • But a more nuanced understanding would also be to accept the fundamental difference in where various countries are in their respective stages of development. The western democracies are called “advanced’ nations for a reason. Socio-economically speaking they are in a different league vs. Emerging economies such as India, Brazil, Indonesia etc.
  • The speed & the size of the western countries’ reaction, esp. in Europe, to the pandemic in terms of fiscal & monetary support is truly commendable. They’ve surely learnt their lesson from the GFC in 08/09. I can’t confidently repeat this for India.
  • To comp 23.9% vs. 9.1% declines of India & US against each other effectively nullifies these basic realities.

Finally, I’m glad that Business Today had their facts right atleast w.r.t to their numbers. But to bunch India with these advanced economies just to create an infographic isn’t the smartest editorial decisions. I’d rather just reflect on India as its own entity and worry about where we go from here!

I’m glad I learnt some trivia on GDP from this whole episode, but the reason I deep dived is unfortunate: an environment of distrust and lack of integrity in news reporting.

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