ChineseData,RBIPressmeetandSimonKuznets

In the modern times GDP number has become the gold standard. The economists, financial media, policy makers, regulators everyone tries to assess the current number and its future trajectory. As IMF came out with its gloomy forecast for the world GDP this week and we have the Chinese GDP number out today, the discussion on what GDP number signifies and its historical underpinnings becomes pertinent.

As the data has come out, the Chinese GDP has contracted 6.8% for the quarter ending march. This is the first quarterly decline since the country started reporting its numbers in 1992. As GDP is inextricably linked to the interaction between the economic agents, it is quite natural that the lockdown has resulted into a contraction. The matter to debate here would be that how much of the same can recouped once the economy opens again. There is a component of it which can be salvaged, the discretionary purchase which you delayed can be done once the lockdown opens and it will add to the GDP in that quarter. But there is a component of it which was linked to immediate consumption and that portion is lost forever. You cant have two haircuts in a single month even if you want to compensate for your three month long tresses.

In his book The Big Number, Economics Professor and Historian, Dirk Philipsen goes into detail of the history of GDP and tries to reason the current enchantment of the financial community with the GDP number. When number of people are comparing the current economic scenario to the Great Depression of 1930’s, it becomes interesting and important to note that GDP as a number first arrived at the scene at that time. Policy makers were looking for a metric to base, justify and evaluate their actions, GDP it appears with its magical quality to abstract every economic interaction into a single hard number was the panacea. The fascination has continued since. Philipsen notes that Simon Kuznets who first devised the formula for calculating GDP was far unsure of its efficacy and appropriateness, then the policy makers who embraced it.

In the economic news round up, Dow Jones had a flat session but futures are up significantly in early trading. Asian stock markets like Nikkei and Kospi are also up. The hope trade is predicated on a report that the initial trials by a big pharma company on COVID vaccine have shown a ray of hope. In data of weekly US jobless numbers released yesterday another 5 million people have filed the claim taking the total tally of claims to 22 million.

Indian rupee closed at the historic low of 76.87 yesterday down 0.5% from the previous close. Stock markets though closed with mild green. Today the important event will be the press conference by RBI Governor at 10:00 am. Announcement on the second instalment of a fiscal relief package is also gaining ground as the Finance Minister met PM to apprise him of the ground situation.