Why covid-19 did not harm rich economies as badly as first thought

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recovered its pre-pandemic output levels. But after revisions to the 2020 and 2021 figures, in September GDP was found to be 0.6% above its pre-covid size rather than 1.2% below it. The Office for National Statistics added almost 2% to its estimate of national income and transformed Britain’s economic performance from that of a global laggard to something more respectable.

Also in September Italy’s statistics office upgraded its estimate of growth in 2021, at current prices, from 7% to 8.3%. That was not enough to offer the government the room it hoped for to justify tax cuts, but was still a significant revision. In both countries the absolute size of the revisions is partially explained by the magnitude of the swings in GDP in nearly all economies in 2020 and 2021.

The lockdowns of 2020 caused output to plummet at a pace not seen in decades and the unwinding of restrictions in 2021 prompted a strong bounce-back in most places. Proportionally normal revisions to large swings in GDP add up to big numbers. These revisions are driven by what the statisticians call input-output tables (IOT).

The initial estimates are based on partial data and on headline revenue figures reported by companies. As more detailed data become available, statisticians are able to use IOT to measure the inputs and outputs of each sector more minutely. That allows them to get a better look at how profit margins evolved over time.

Margins, it is now thought, held up better than once believed, leading to higher estimates of profits, income and hence total GDP. Over the coming months more rich countries will be able to update their data in light of better information. More revisions will follow.