by Timothy Taylor, Conversable Economist

IMF statistics show that world GDP fell 4.9% from 2014 to 2015 which is almost as severe a drop as occurred from 2008-2009. Check out the bottom rows of Table A1 in the October 2015 issue of the World Economic Outlook, and you find that world GDP fell from $77.2 trillion in 2014 to $73.5 trillion in 2015. Sure, the world economy hasn’t been booming in the last year or so. But did we really just experience another global recession like it 2009? It seems implausible. So what’s going on?

There are two plausible explanations, one of which seems to have a little more oomph than the other. Peter A.G. van BergeijkPeter A.G. van Bergeijk that some of the explanation is likely to have occurred from inadequacies in the IMF statistical system. As he points out, in a conceptual sense any exports from one country must be imports to another country–so the official statistics gathered by each country should add up in a way that global exports are equal to global imports. However, when the IMF adds up it statistics, it finds that total world exports exceed total world imports by $206 billion. This factor alone isn’t sufficient to explain a $3.7 trillion drop in global GDP, but it does suggest that there are some problems in the underlying statistics.

The other explanation, courtesy of Maurice Obstfeld, Oya Celasun, Mandy Hemmati, and Gian Maria Milesi-Ferretti, emphasizes that this decline in world GDP from 2014 to 2015 is based on a calculation that converts the GDP of each country into US dollars using market exchange rates. The problem arises because in the first nine months of 2015, the foreign exchange value of the US dollar rose by 13%. When the US dollar becomes “stronger” and can buy more of foriegn currencies, it necessarily implies that the currencies of other countries are “weaker” and buy fewer US dollars. Thus, a stronger dollar means that when the IMF converts the GDP of other countries into US dollars, those GDPs will look smaller.