Estimates of World GDP Lost to the Global Coronavirus Recession

We are no longer alone in estimating the economic impact of the global coronavirus pandemic by measuring changes in the concentration of carbon dioxide in the Earth’s atmosphere!

We learned that from a press release earlier this month from the University of Sydney, which announced a study quantifying the negative economic impact of the pandemic through 22 May 2020. Here’s an overview of their findings:

The first comprehensive study of the pandemic shows consumption losses amount to more than US$3.8 trillion, triggering full-time equivalent job losses of 147 million and the biggest-ever drop in greenhouse gas emissions.

The international group of researchers, using a global and highly detailed model, found that most directly hit was the travel sector and regions of Asia, Europe, the United States, with cascading multiplier effects across the entire world economy because of globalisation.

The loss of connectivity imposed to prevent the virus spreading triggers an economic ‘contagion’, causing major disruptions to trade, tourism, energy and finance sectors, while easing environmental pressures most in some of the hardest-hit areas.

This study focuses on ‘live’ data to 22 May (with the exception of air travel, for which only a 12-month forecast exists), differing from most assessments of the economic impacts of the pandemic based on scenario analyses and/or projections – and it is the first to provide an overview of the combined economic, social and environmental impacts, including indirect effects, of the coronavirus.

How does that compare to our first back-of-the-envelope estimate, which looked to answer the question back in early April? Back then, we found “a reduction in World GDP through March 2020 of $3.988 trillion“, which means our ready reckoning result has proven to be within the right order of magnitude of the findings of the world’s first comprehensive study of the pandemic assembled by a team of international researchers using a global and highly detailed model!

That, of course, is the whole point of back of the envelope estimates! It’s all about getting within a reasonable margin of error with the limited data available, where getting the order of magnitude right means we have a viable tool for doing that job.

But our estimate also begs a question. Our initial estimate applies through March 2020, while the University of Sydney’s researchers took theirs through 22 May 2020. Let’s do a quick update using our method through May 2020, the relevant data for which has been set as the default entries in the following tool. If you’re accessing this article on a site that republishes our RSS news feed, you may need to click through to our site to access a working version, and possibly even to see the rest of this article!

Setting the default entry for Change in Carbon Dioxide in Atmosphere to -0.18 parts per million, which is the change in the trailing twelve month average of the year over year change in the concentration of atmospheric carbon dioxide measured at the remote Mauna Loa Observatory from December 2019 through May 2020, we find an estimated decline of roughly $6 billion in World GDP. That’s 1.6 times the $3.8 billion decline for the pandemic estimated by the University of Sydney through the third week of the month, which is to say our quick estimate is still very much in the right ballpark for the order of magnitude.

If you want to update the estimate of World GDP lost to the negative economic impact caused by the coronavirus pandemic using our method through the end of June 2020, just change the -0.18 default entry to -0.24 in the tool.

References

National Oceanographic and Atmospheric Administration. Earth System Research Laboratory. Mauna Loa Observatory CO2 Data. [File Transfer Protocol Text File]. Accessed 10 July 2020.

Cederborg, Jenny and Snöbohm, Sara. Is there a relationship between economic growth and carbon dioxide emissions? Semantic Scholar.
[PDF Document]. 2016.

Larsen, K.; Pitt, H.; Larsen, J.; Herndon, W.; Houser, T.; Kolus, H.; Mohan, S.; and Wimberger, E. Taking Stock 2020: The COVID-19 Edition. Rhodium Group. [PDF Document]. 9 July 2020.

Image credit: Photo by Erik Mclean on Unsplash