GDP ?!?!?!

So we're all screwed!

I vividly remember when I started my career in early naughts. Every corporation, everywhere had a "Vision 2020" goals and objectives. Some companies wanted to increase their revenue by X times, some wanted to expand in different markets, introduce new product categories and so on. Most corporations were using these buzzwords to drive their share prices up. 

Come 2020 and we're screwed. 

Many of us would prefer we fast forward to 2021, thanks to COVID-19 and the tragedy that has befallen many families and the world economy in general.

Depending on which entity you're following between International Monetary Fund, Federal Reserve, European Central Bank or the People's Bank of China, it is widely understood that GDP of different nations and the world is fucked. The estimates are average GDP contraction between negative 5 percent and 8 percent, depending on which entity you keenly follow. Let's take a look at is GDP and it's impact on the economy.

GDP stands for Gross Domestic Product. Simply put, it is the sum of all goods and services produced in a country in a given period of time. Did you know United States has a share of ~25 percent of the world GDP. You can find the GDP of different countries listed over here . GDP is an indicator of the economic health of a country during a given period of time. It is one of the most closely watched economic indicators. From a macroeconomic perspective, it plays an influential role in key business decisions companies make for the foreseeable future. Foreign Direct Investment in emerging economies depends on the GDP growth of the economy measured in percentage. World travel is intricately connected to GDP. Many airlines predict traffic growth in key markets and make investment decisions such as purchasing of aircraft based on GDP projections of countries they fly into. Governments customize their foreign policies depending on the GDP of the country their are interacting with. Bigger the share of the world GDP, bigger the influence. No wonder then, China and United States are the top two economies of the world. 

Now, for the economic geeks, lets take a look at the GDP formula. It is denoted by the letter "Y" and can be written as Y = C + G + I + Nx, where

C = Consumption
G = Government expenditures
I = Investment
Nx = Net Exports (Exports  - Imports)

Consumption is referred to the consumption by individuals in a country. Generally speaking, the more you consume the better it is for the economy and is indicative of disposable income.

Government expenditures is indicated by the monetary and fiscal policies in place by the government. When a government spends more, it generates more wealth usually amongst the population.

Investment refers to domestic private investment and is an indication of the confidence of businesses and lending companies in the state of the economy.

Net exports refers to total exports minus total imports. Ideally, it is preferred to have total exports marginally higher than total imports, thereby producing more in the country than what is imported for the country.

COVID-19 has turned all these parameters upside down. At the time this article is being typed, we don't know what is in store for the future. Airlines have virtually ground to a halt. Flying passengers traffic is down 95 percent year over year. Projections for when we go to pre-COVID levels is pretty dire. Financial markets have seized up and business to business lending has slowed down. Our friendly banker down the road, Federal Reserve has once again started to print money out of thin air and prop up the economy. As much as I am amused by the Fed's actions, without doubt the Fed Reserve deserves applauds for the swift way in which it has reacted to irrational markets and all the measures it has taken to calm the markets. Oil is of course at the mercy of MBS and Putin. Other than that, Jerome Powell deserves credit for his calm handling of this crisis. Nevertheless, there are about 30 million people who are on employment at this time. Given that Labor Force Participation Rate is ~$150M, it is a shockingly 20 percent unemployment rate. Certain states in the US are reopening in spite of continued tragic deaths due to COVID-19. Will this restart the economy and if so will it be a V-shaped recovery? It is doubtful.  How long before people feel comfortable going out and eating in restaurants? How long before people feel comfortable flying? Flying pre-COVID was a PITA. How is it going to look post-COVID? Are companies going to still invest for the long term? What if there is a second wave of coronavirus deaths across different parts of the world? These questions and a lot more weigh heavily on the minds of different people across parts of the world. 

If people are out of work and everyone is hunkered down and not really spending, except for essential items, it has a detrimental impact on GDP. If governments at different levels are declaring bankruptcies, what does it do to their expenditures? Are companies going to really invest at this time? The only imports and exports in these uncertain times seem to be PPE and ventilators. The impact to different countries' GDP is going to be severe and brutal. Many countries from Italy to India have been lockdown for an extended period of time.. You can't lockdown a few billion people and expect the economy to have a V-shaped recovery. The only hope we can have in 2020 is to find a vaccine that yields positive results, protect the vulnerable and slowly and steadily head back to the roaring world economy we had at the end of 2019.

Till then, 2020 is a year to forget. So much for "Vision 2020" .... huh! 

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