Take for example the sharp increase in loans made by banks in the USA during March 2020.

Normally, such a sharp rise in loans would be taken as bullish, since more loans are often an indication of economic confidence and growth. Furthermore, an increase in loans is also an increase in money supply. Put all these positive factors together, and it isn’t surprising why anyone looking at the chart would think that March 2020 was a period of rapid growth in the US economy.

Of course, we know better, since March 2020 marked the height of global market panic over Covid. With this very important fact in mind, we know to interpret the sudden spike higher in loans differently. These loans were companies drawing down their revolving credit facilities with their banks out of fear that banks would refuse to lend at a later date because of economic disruptions from Covid.

In other words, corporations were hoarding capital, instead of borrowing cash for capital expenditures or operational expansion. Not a sign of economic growth after all then; quite the opposite actually.

Hence, we can see that the same data point can be interpreted in at least two different ways, leading to two very different conclusions. In this example, the interpretations vary based on context – with or without considering Covid. The next example will illustrate even greater levels of subjectivity.

GDP numbers are frequently used to further a narrative, especially around political cycles, where politicians like to trumpet their “economic record” and happily quote GDP figures (if the figures are in their favor of course!). 

Coverage of GDP figures in the Covid era is the same, where each figure has been placed into a broader narrative of economies being in recovery. China’s GDP figures are a case in point, with the chart below used by many commentators as evidence that Chinese growth is very strong, and will help pull the world out of its economic doldrums.

The same thing happened post 2008, where mainstream narratives cheered China’s quick economic rebound and massive economic stimulus as the driving force behind the world’s recovery. But, how strong is China’s recovery, really? Here’s a longer term chart for a broader perspective.

From this standpoint, China’s “V” shaped recovery from its Covid lows really isn’t that impressive. After all, China’s GDP growth has been slowing down for many years now, regardless of whether you view it from the highs of 1993 or 2007.

Furthermore, it is apparent that the hype around China’s post 2008 recovery didn’t really deliver much, petering out and reversing in 2011. It’s post Covid recovery, while very impressive on shorter time frames, only brings GDP growth rates back to their decades long downtrend when seen from a longer time frame.

Will Chinese growth pull the world out of its Covid induced economic slump? It depends on who is interpreting the data!