The world’s economies are recovering from the COVID-19 pandemic, but the rate of growth is a fraction of what it was prior to the crisis. What can explain this slowdown?
GDP measures the value of all the goods and services produced by an economy. But it does not account for important factors that might influence human well-being, such as environmental impact or unpaid domestic work. Neither does it take into account quality improvements and the introduction of new products, which can boost living standards. Alternative economic indicators, such as the Human Development Index or doughnut economics, consider these and other factors when assessing a country’s standard of living.
Consumer spending—the amount of money that individuals or businesses spend on goods and services—has a strong influence on GDP, as does investment, which includes capital expenditure such as machinery. A high level of confidence in the future can prompt consumers and businesses to spend more, whereas a lack of confidence or fear of a decline in their purchasing power may depress consumption and investment.
For the most part, GDP is highly correlated with economic activity and global trade, so changes in one typically affect the other. To illustrate this, the table below presents separate estimates for advanced economies (AEs) and emerging market and developing economies (EMDEs). The results show that changes in deaths, lockdown restrictions, and exports all had a discernible effect on GDP growth, although the magnitude varied across countries and time periods.