Monthly Composite Macroeconomic Performance Score based Country Rankings Assessing Early Effects of the COVID-19 Pandemic

Abstract

In this paper we try to fill the void in availability of comprehensive and yet all inclusive indicators for judging relative country performances on the economic front. Forward looking monthly economic indicators like, even the Purchasing Managers Indices (PMIs), estimated either officially by the government or agencies, become subject to a much greater degree of uncertainty during economic and financial crises. Survey based leading indicators like PMIs are crucial but they do not and cannot cover the entire spectrum of the actual economic variables. Alternatively, considering a range of official monthly indicators leave open important questions of addressing incommensurability among them, and also implicit weighting and aggregation methods for arriving at a comprehensive picture of macroeconomic performance. The need for a single measure, to compare all aspects of macroeconomic performance, is accentuated by the fact that policies pursuing different macroeconomic goals of growth and stability usually involve certain tradeoffs. In the wake of global crises it becomes even more important to consider tools for frequently comparing country-wise performances to evaluate and learn from experiences. In the backdrop of the unprecedented crisis brought about by the COVID-19 outbreak, we introduce an indicator which allows a parsimonious representation of a variety of different facets of economic performance and its comparison across countries and is thus most useful in providing guidance to the relative stages of economic recovery around the globe. We take the composite indicators approach that consists in merging several available official monthly indicators of economic wellbeing and financial sector conditions, into a single metric. The TOPSIS (Technique for Order Preference by Similarity to Ideal Solution) methodology used in OR (operations research), specifically MCDM (multiple-criteria decision making) is used to arrive at the composite performance scores (CPS). A Rank Mobility Index (RMI) using the CPS based monthly rankings of 21 countries with comparable data on chosen variables reveal the severity of crisis across countries, the changing effects on economic wellbeing The RMIs clearly show the adverse effect of the pandemic on emerging market economies, in the early stages of the pandemic, particularly when world trade and production lines had been impaired and also confirms that high levels of government debt can be debilitating specially under unprecedented circumstances like this pandemic when the private sector has been forced to downsize all over the globe. As a composite indicator, the CPS is expected to reveal, more comprehensibly, than a plethora of indicators, the relative position of an economy at any point in time and provides us with a tool for continuous evaluation of relative economic performances of countries over time in crisis as also under normal circumstances. The TOPSIS ranking methodology is robust such that the choice of variables also can be modified according to the ready availability of coincident indicators or high frequency ones and/or to suit specific evaluation needs. CPS based rankings and the RMIs would help in assessing relative positions and provide readily a comprehensible picture of the global economy overall. We hope these monthly rankings would help policy makers, investors, and analysts to identify the short-term inter-temporal changes in country performances and offer some timely actionable intelligence over and above those provided by individual macro-financial indicators of countries.