Plunging U.S. and European GDP in the Second Quarter of 2020: A Tale of Two Headlines

Recent estimates on GDP that show drastic declines for both the U.S. and Europe have taken a firm hold in the news cycle over the past few days. But these headlines point to very different magnitudes of change. For example, cnbc.com has the following two headlines:

For the U.S. on July 30: “Second-quarter GDP plunged by worst-ever 32.9% amid virus-induced shutdown.”

For Euro-zone on July 31: “Euro zone GDP plunged by a record 12.1% in the second quarter.” 
               
So, do these headlines indicate that the U.S. was more severely impacted by the pandemic and the policy response to the pandemic? No, they do not. The article regarding the U.S. indicates, several paragraphs deep, that the quoted plunge in GDP is on an “annualized basis.” Basically, this is a calculation of what would be the impact on GDP if the second quarter percentage decline were to repeat itself each quarter for an entire year. The U.S. Bureau of Economic Analysis tends to report quarterly changes in GDP in this manner.
               
The Euro-zone headline, based on data and press releases from Eurostat, refers to the change in GDP between the first and the second quarter, and not an annualized value. Eurostat refers to this as the percentage change compared to the previous quarter.
               
We can rather easily convert the Eurostat values to an annualized basis for comparison with the U.S. BEA’s favorite reporting method, and we can just as easily convert the BEA’s annualized basis to a quarter-to-quarter value. This is done in the table below, and indicates that the impact of the pandemic and the policy response to the pandemic was actually worse in the Euro area than in the U.S. For the sake of comparison, I am using U.S. nominal GDP and Euro-zone nominal GDP.
               
I also calculate the cumulative impact in 2020 of the first quarter and second quarter declines. For the U.S., the nearly 1% decline in quarter one and the nearly 10% decline in quarter two have reduced GDP by almost 11% from the fourth quarter of 2019. In the Euro-area, and in four large economies from the euro area, the impact has been much worse. Germany is the nation with an experience most like the U.S. with a 12% decline. Spain has had a GDP decline of almost 23% compared to the fourth quarter of 2019. The Euro-area as a whole has seen a 15% decline compared to the fourth quarter of 2019.

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Source: Eurostat; https://ec.europa.eu/eurostat/web/national-accounts/data/database , and
U.S. Bureau of Economic Analysis: https://www.bea.gov/sites/default/files/2020-07/gdp2q20_adv_0.pdf and author calculations.
 

Posted: August 03, 2020 by Dennis W. Jansen