Date posted: 22/09/2020

Change in GDP falls short as measure of true impact of COVID-19

Australia and New Zealand are now both officially in an economic recession with GDP falls in consecutive quarters. A nuanced look at COVID’s impact can reveal a more mixed report card.

COVID-19 has affected us all – no single person, organisation or area has been immune from the impact of the pandemic and the measures taken to contain its spread.

When it comes to determining the pandemic's overall impact on the country, Gross Domestic Product (GDP) has been the 'go to' measure. But GDP falls well short when it comes to capturing the full impact of COVID-19.

This month Stats NZ announced the New Zealand economy declined 12.2 percent in the June quarter, the largest decline on record. Earlier, the Australian Bureau of Statistics announced Australian GDP fell 7.0 percent in the June quarter, again the largest quarterly fall on record.

However, it seems Kiwis at least mostly remain happy, perhaps even a bit more so. Statistics New Zealand's wellbeing survey, for exactly the same quarter, shows the average overall life satisfaction rating was 7.9 out of 10, up slightly on a 2018 survey.

Also, seemingly paradoxically, those rating their overall health as 'excellent' during the April-June lockdowns was up markedly on 2018.

Australians may be not adapting so well. In mid-August, an Australian Bureau of Statistics survey found Australians reporting that they were experiencing feelings associated with poorer emotional and mental wellbeing, including almost half (46%) feeling nervous at least some of the time.

The limitations of GDP

GDP is solely a measure of economic progress (or as we are seeing, regress). It misses many of things we value, for example our personal relationships, the environment and not least our health – the fundamental reason for the lockdowns.

The New Zealand Government's wellbeing approach, and Treasury's living standards framework, use broader measures of national welfare, recognising the shortcomings of GDP.

A nuanced look at COVID's impact using New Zealand Treasury's living standards framework produces a more mixed report card.

While some of the economic and business indicators have declined, there have been a number of positive responses, particularly on the social side with many of our interactions improving.

The lockdowns also gave us a look at what's possible with the environment, but sadly many of the gains made here have already been lost. GDP has its place. It is a great way to compare how an economy performs over time and against other countries.

It is also used as a proxy, though nowhere near a perfect one, for wellbeing. In general, wealthy countries are those who can afford to spend more on health, housing and the environment.

And in tough times, the economy becomes much more important. In an Ipsos poll, published two months into lockdown, nearly half of New Zealanders believed the economy was the country's number one issue – a four-fold increase pre-COVID.

Measuring a broader recovery

But as simple and reliable as GDP is, it shouldn't be used as the scorecard for how we are performing as a nation, particularly as we recover and rebuild. We should also not pursue rapid economic growth purely for the sake of growth and at the expense of our other values.

As ever, we need the right kind of long-term growth, building fairer, cleaner and more resilient nations. COVID-19 is having an intergenerational cost so we need intergenerational value to be created through the recovery.

"We should also not pursue economic growth purely for the sake of growth and at the expense of our other values."

We can also take steps to reduce the digital divide and improve our health system so we are more prepared for the future. We need to measure our progress through a broader suite of measures over the longer term. This is our opportunity to ensure our recovery not only creates jobs, but creates jobs which reduce inequality and improve our environmental impact.

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