External MPC Unit Discussion Paper No. 40
Adrian Chiu and Tomasz Wieladek
Based on the decline in real GDP growth, many economists now believe that the ‘Great Recession’, the output contraction the world experienced in 2008–09, is the deepest global economic contraction since the Great Depression. But as real-time real GDP data are typically revised, we investigate if the decline in, and total output loss (severity) of, G-7 real GDP during the ‘Great Recession’ is really so different from the past. We use a GDP weighted average of, as well as a dynamic common factor extracted from, real-time G-7 real GDP data to verify if this is the case. Furthermore, we use a Mincer-Zarnowitz (1969) forecast efficiency regression to predict the revision to G-7 real GDP growth during the ‘Great Recession’, based on outturns of unrevised variables. In real-time data, the depth and intensity of the ‘Great Recession’ are similar to the mid-1970s recession. The Mincer-Zarnowitz (1969) model predicts a revision to G-7 real GDP growth of about 1.9%. Tentatively these facts imply that G-7 real GDP growth during the 2008–09 period may yet be revised to be in line with past deep recessions, but this conclusion is subject to the caveat that the revisions process may have changed over time.