Friday, April 27, 2012
ONS to clear up the GDP confusion
Posted by David Smith at 05:30 PM
Category: Thoughts and responses

Read the Office for National Statistics GDP press release, here, and it all looks very straightforward, Growth has disappointed throughout 2011 and into 2012, with growth rates through 2011 of 0.2%, -0.1%, 0.6%, -0.3% and -0.2% respectively, as set out on page 2 of the release.

But then look on page 7 of the release and, as Economics UK reader Sean Fear points out, you get a very different picture. Add up the contributions to GDP growth and, while the latest two quarters are unchanged, the first three quarters of 2011 look as if they should be 0.6%, 0.1% and 0.7% respectively, a somewhat stronger picture. A similar message emerges in Table B1 on the last page of the release.

There is an ONS explanation, and this is it: "The link between GVA and GDP is shown below:
GVA at basic prices (by industry) plus Taxes on products (e.g. VAT) less Subsidies on products (e.g. transport) equals GDP at market prices (for the whole economy). The above applies to both current prices and in volume terms.

"At the Month 1 stage, the headline GDP measure in volume terms is based on the Output approach (proxy to Production) to measuring GDP. This in reality is based on the aggregation of all industries' GVA. The whole economy GDP estimate implicitly assumes the movement in volumes of taxes and subsidies is in line with the underlying movement in volume terms for GVA (for the whole economy). In terms of the industry contributions to growth, this is in reality applied to whole economy GVA and not GDP, generating minor differences.

"At Month 2 and Month 3, the headline GDP measure in volume terms is based on all three approaches to measuring GDP - Production (i.e. output), Income and Expenditure. In achieving the headline estimate, there is a statistical discrepancy applied to both the Income and Expenditure approaches. The values of the statistical discrepancy may differ on Expenditure compared with Income. At Month 2 and Month 3, the industry contributions to growth are evaluated against GVA as laid out in Annex A of the respective release."

The ONS has promised to change the presentation of some of the data to clear up the confusion. Looking back on the data for some of those earlier quarters, it looks as if the expenditure measure of GDP is a lot weaker than the two other measures.