The Burrow
Jan 20, 2022
The COVID-19 pandemic has had drastic impacts on many aspects of our lives, ranging from the global economy to each individual person. Lockdowns, restrictions and closed borders have caused some of the biggest short-term contractions in global economic activity ever recorded.
When it comes to the housing market and financial industry in Australia specifically, it was an interesting time – and that’s putting it mildly. As COVID-19 cases began to increase, there was speculation the value of some homes could decrease by as much as 30% – 40%.
With the outlook for our economy looking quite grim, the Reserve Bank of Australia cut the cash rate to an all-time low, and the lenders all followed suit and reduced their variable rate offerings as the cost of borrowing greatly reduced. Banks/Lenders introduced new payment pause options for home loans which gave the option to customers to place their repayments on hold for several months, although Interest was still being charged which proved a nasty surprise for some borrowers.
The Government also brought in a “HomeBuilder” grant, which provided a $15k payment boost to any customers who were constructing a new home or completing extensive renovations, in a bid to keep the construction industry afloat.
As many Australians continued to work from home, they were able to build up considerable savings by not spending so much disposable income due to lockdowns and travel restrictions, which enabled many to afford a sufficient deposit for a home loan. What made the option even more appealing was the super low interest rates, with some interest rates being as low as 1.74% for 4 years Fixed. The Reserve Bank indicated they did not anticipate a need to raise the cash rate till at least 2024.
During this time, a lot of people were hesitant to sell their home, so the number of new listings available greatly reduced. In short, the perfect storm occurred, and Australia was in a home buying frenzy. House prices skyrocketed around Australia, and not just in major metropolitan areas, but also in regional areas where people now had the previously unavailable option to work from home.
But how did that look in the earlier days of the pandemic, and how did other countries perform?
To find out, the home loan experts at Compare the Market have explored which OECD countries (Organisation for Economic Co-operation and Development) saw the biggest changes to their GDP in 2020.
Gross Domestic Product (GDP), according to most technical definitions, is ‘the standard measure of the value added created through the production of goods and services in a country during a certain period.’ In short, it’s a measure of the strength of a country’s economy.
GDP is almost always adversely affected during economic crises. During the Global Financial Crisis (GFC), the 38 OECD member countries suffered a total GDP fall of 3.4% in 2009.1 But that’s comparatively little next to the COVID-19 pandemic.
The pandemic was very different to other recent crises as numerous industries and large portions of whole economies were almost completely shuttered. Flights were cancelled for non-essential travel and all but essential businesses were told to close in many countries, with lockdowns reducing consumer spending.
This led to an “unprecedented” OECD decline of 9.8% in the second quarter of 2020, and an annual GDP fall of 10.9%.2 That is the “largest drop ever recorded for the OECD area”, significantly larger than the -2.3% recorded in the first quarter of 2009.
Simply looking at quarterly GDP numbers can be misleading, as it only presents a snapshot in time. For example, India suffered an enormous quarterly drop of 25.9% in Q2 2020, before regaining most of that with another 23.1% in the next quarter.
Likewise, the UK’s GDP fell 19.5% in the second quarter of 2020, but it’s final GDP for the whole year was nowhere near as bad. That’s why many economists generally regard annual GDP figures as a better gauge of success.
For context, Australia sits firmly in the middle of the pack when looking purely at GDP growth for 2020 vs 2019. Australia’s 2020 GDP was 1.24% lower than 2019’s at US$1.33 trillion, a fall of more than US$16.7 billion.
That’s enough to see Australia rank 15th out of 38 OECD member countries, although it’s well above the OECD average. Across all OECD member countries, GDP fell by 3.10%: that’s a mammoth US$1.96 trillion fall to more than US$61.32 trillion!
In the table below, we’ve analysed the rest of the OECD’s national accounts data across both 2019 and 2020 as a whole – that’s January to December each year – and calculated the difference in GDP for each. While the pandemic is very much still going, 2020 bore the brunt of the impacts, and is the last complete set of yearly data available.
All figures are displayed in US dollars and represent the percentage difference between the total GDP in 2019 vs 2020.
Looking at the OECD’s data, the top five countries in terms of 2020 GDP compared to 2019 all recorded an increase: Ireland, Turkey, Israel, Korea and New Zealand.
Ireland’s 2020 GDP took out top spot, recording a yearly growth of 7.65%. That means its GDP grew US$33.81 billion to nearly US$476 billion, despite the pandemic. Ireland’s Finance Minister Paschal Donohoe said this growth was mostly due to exports.4
“Today’s figures once again point to the dual economic impact of the pandemic, with domestic activities bearing the brunt,” he said in March.
In second place was Turkey, growing by 4.05% (US$92.30 billion) to US$2.37 trillion.
Rounding out the podium was Israel with a decent 1.57% gain from 2019, taking its GDP to US$385.7 billion (up almost US$6 billion).
Korea (+1.07%) and New Zealand (+0.60%) finished 4th and 5th, growing their economies slightly to US$2.23 trillion and US$225 billion respectively.
Not every country fared as well as these five, and some are still struggling. When comparing GDP in 2020 and 2019, the pandemic had the biggest negative effects on Spain, Greece, Italy, Mexico and the United Kingdom.
Spain really copped it in 2019 and 2020, suffering an 8.71% decline to US$1.81 trillion – a US$173.15 billion drop, or approximately one Jeffrey Bezos.
It was Spain’s biggest contraction on record, as Spain, hit by several deadly waves of the virus, has a huge dependency on tourism and travel.
“Tourism activity dropped by an estimated 75% from April 2020 to March 2021, and some service activities were hit hard by contact restrictions, either due to their nature or because of low take-up of digital technologies,” the OECD said.
In second (or second-last) is Greece, the perennial economic punching bag. Greece experienced a sizeable 7.84% decline in 2020, which is a US$25.96 billion fall to US$305 billion.
Italy, which was really the first European country to get hit with the virus, saw a 6.99% contraction to US$2.49 trillion (-US$187.16 billion).
In 4th and 5th place is Mexico and the UK – both very close behind.
Mexico’s GDP fell 6.92% in 2020, down US$180.45 billion to US$2.43 billion. The UK meanwhile experienced a 6.89% drop in GDP to US$3.02 trillion (down US$223.41 billion).
So far in 2021, many economies have started to recover, and are even back above where they were before anyone had even heard of the coronavirus. According to the OECD6:
“Gross domestic product (GDP) of the G20 area returned to pre-pandemic level in the first quarter of 2021, growing by 0.8% compared with the fourth quarter of 2020. However, this figure conceals large differences across countries.”
“Among the G20 economies, India, Turkey and China, whose GDP was already above pre-pandemic levels in the previous quarter, continued their recovery, by 2.1%, 1.7% and 0.6%, respectively (after 9.3%, 1.7% and 2.6% in the previous quarter).
“GDP in Australia, Korea and Brazil also returned to pre-pandemic levels in the first quarter of 2021, with GDP growing by 1.8%, 1.7% and 1.2%, respectively.”.
In its Economic Outlook for 2021,7 the OECD found that while countries like China and Turkey have already recovered to their pre-pandemic GDP per capita (dividing the total GDP by its population) or above, other countries like Argentina might take until as far away as 2025.
“Countries that have been quick to vaccinate their population against COVID-19 and that are managing to control infections through effective public health strategies are seeing their economies recover more quickly,” it said.
“But while vaccination rates are progressing well in many advanced economies, poorer and emerging-market countries are being left behind. Unless everyone is protected, no one is protected.
“Governments should use all resources necessary to speed up vaccination throughout the world. They should maintain targeted income support for people and firms until economies can fully reopen and invest in digital and green transformation.”
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Using National Accounts data from the OECD database, we compared the total annual GDP of each OECD member country, plus several non-OECD countries listed. We then worked out the percentage and monetary difference between 2019 and 2020’s GDP figures, with 2019 used as the reference point. A 2020 figure lower than 2019 is a fall in GDP, and vice-versa.
All figures are expressed in US Dollars ($ US), with each figure representing the number of billions. All numbers are rounded to the nearest two decimal points.