Download Session 11. GDP statistics by activity

Module H5 Session 11
Session 11. GDP statistics by activity
Learning objectives
At the end of this session the students will be able to

distinguish clearly between current and constant prices




calculate the share of an industrial sector in the GDP
calculate growth rates from the constant price data
calculate the implied deflators
understand the main differences between the CPI and the GDP deflator
GDP at current and at constant prices
After two sessions of SNA theory, we turn our attention to the GDP and its components.
Look at the tables on the next page. They show the GDP of South Africa presented
according to the production approach and showing the gross value added of each industry.
The first table shows the figures at current prices and the second table shows the figures at
constant (2000) prices. The base year is the year 2000.
GDP at current prices
GDP at current prices refers to the value of GDP measured (in theory) according to the
value of each transaction at the time it takes place. The definition of the gross value added
of each industry is its total output minus its intermediate consumption (see Session 9).
GDP at constant prices
In line with index number theory, changes in the values of goods and services can be split
between changes in the prices of the goods and services and changes in their “volumes”.
GDP at constant prices is a measure of the volume of production taking place in the
country. It is GDP at current prices with the inflation taken out. Conceptually, all
transactions are measured as if they had taken place at the average prices of the base year.
In the base year the figures at current and at constant prices are identical.
In principle, according to the production approach, GDP is the volume of outputs minus
the volume of inputs, combined using base year prices. GDP can also be calculated at
constant prices according to the expenditure approach, by deducting imports measured at
constant prices from the sum of the other components measured at constant prices. In
theory the result is identical.
SADC Course in Statistics
Module H5 Session 11 – Page 1
Module H5 Session 11
South Africa: GDP by industry at current prices (million Rand)
2000
Agriculture, forestry and fishing
Mining and quarrying
Manufacturing
Electricity, gas and water
Construction
Wholesale and retail trade; hotels
and restaurants
Transport, storage and
communication
Finance, real estate and business
services
General government services
Personal services
Total value added at basic prices
Taxes less subsidies on products
GDP at market prices
2001
2002
2003
2004
2005
2006
27,451
63,391
159,107
22,789
21,114
122,702
32,588
77,214
176,907
23,023
22,416
130,387
44,179
92,113
209,605
26,046
24,119
143,095
40,889
84,258
221,652
28,316
26,947
157,728
39,432
89,290
237,100
29,645
29,838
175,738
37,625
100,515
254,993
31,574
33,161
191,549
41,632
120,221
278,794
33,579
39,414
213,233
80,872
89,511
100,034
110,439
122,240
131,955
145,044
156,252
177,531
204,667
229,007
260,151
293,481
337,301
133,158 142,325 157,312 174,548 193,423 209,471 226,458
51,382
56,313
62,631
69,895
76,998
84,055
94,327
838,218 928,216 1,063,801 1,143,679 1,253,854 1,368,378 1,530,002
83,930
91,792 104,898 117,014 144,305 170,590 197,476
922,148 1,020,008 1,168,699 1,260,693 1,398,159 1,538,968 1,727,478
South Africa: GDP by industry at constant 2000 prices (million Rand)
2000
Agriculture, forestry and fishing
Mining and quarrying
Manufacturing
Electricity, gas and water
Construction
Wholesale and retail trade; hotels
and restaurants
Transport, storage and
communication
Finance, real estate and business
services
General government services
Personal services
Total value added at basic prices
Taxes less subsidies on products
GDP at market prices
2001
2002
2003
2004
2005
2006
27,451
63,391
159,107
22,789
21,114
26,558
63,325
164,131
21,956
22,154
28,292
63,927
168,729
22,722
23,441
27,700
66,502
166,405
23,151
25,053
28,083
67,363
174,197
23,835
27,830
29,232
68,987
182,917
24,460
31,134
25,390
68,536
191,630
25,207
35,401
122,702
125,018
127,870
136,138
144,111
153,497
163,754
80,872
85,646
93,390
98,864
103,500
109,165
115,088
156,252
169,015
179,623
187,062
201,756
212,885
230,402
133,158
51,382
838,218
83,930
922,148
131,914
52,537
862,254
85,120
947,374
132,859 136,018 139,349 144,166 148,589
53,852
56,074
57,183
60,241
62,442
894,706 922,966 967,208 1,016,684 1,066,438
87,416
89,797
94,563
99,133 104,928
982,122 1,012,763 1,061,771 1,115,817 1,171,366
Source: Statistics South Africa
Technical note:
Theoretically, for measuring changes in the volume of production, the SNA prefers the use of
chained (Fisher) indices, but it recognises that the traditional Laspeyres approach using a fixed
base year (updated from time to time) is more practical and most countries continue to use it.
An important advantage of the latter is that the components add up to the totals, which is not the
case for other types of indices.
SADC Course in Statistics
Module H5 Session 11 – Page 2
Module H5 Session 11
Derived GDP statistics
Several types of statistics can be derived from the estimates of GDP.
Shares of (or percentage contributions to) GDP
When comparing any monetary value to the GDP, GDP at current market prices should be
used as the denominator (on the bottom).
Each industry contributes to the GDP. Put another way, each industry has a share of the
GDP. The share and the contribution are the same, and can be expressed as a percentage.
To calculate the percentage contribution (or share) of agriculture, divide the gross value
added (GVA) of agriculture by the GDP at market prices and multiply by 100. The
calculation should be done using the figures at current prices. (If you were to use the
constant price figures for GVA and GDP you will get slightly different answers, depending
on the base year. The meaning of these different figures is not obvious, and to avoid
confusion the current price figures should be used.)
Growth rates
The usual headline statistic is the “growth rate” of GDP at constant prices. This is the
percentage change in the volume of production in a given year compared with the previous
year. The standard way to calculate this change is to divide the figure for the year in
question by the figure for the year before, subtract one, and express the result as a
percentage. The growth rates may be calculated for each industry.
The annual growth rates can be quite volatile, especially if agriculture contributes
significantly to the GDP and if it is affected by the weather. See the box on the next page.
Index numbers
The GDP and its components at constant prices can also be expressed as (quantity) index
numbers. This makes it easier to see how the various components have moved especially
in relation to the base year. These index numbers are calculated by dividing the figures in
each row by the figure in the base year and multiplying by 100.
Implied deflators
“Implied deflators” are obtained by dividing the figures at current prices by the
corresponding figures at constant prices and multiplying by 100. The results of this
operation are price indices, indicating the effects of inflation on the value added in each
industrial sector or component.
Literally, a “deflator” is a price index used to convert estimates at current prices into
estimates at constant prices. However these deflators are “implied” (or “implicit”) because
they have not actually been used in this way. The constant price estimates will have been
compiled in various ways and in greater detail; the implied deflators are calculated results,
and not themselves used to calculate anything.
SADC Course in Statistics
Module H5 Session 11 – Page 3
Module H5 Session 11
Exercise 1
Based on the estimates of GDP from South Africa and using Excel, make tables showing
the following statistics




the share of each industry in the GDP at (current) market prices
divide each current price figure by the corresponding GDP
the growth rates (at constant prices) for each activity
divide each constant price figure by the figure in the previous year and subtract 1.
index numbers of the volumes of production
divide each constant price figure by the base year figure and multiply by 100
the implied deflators
divide the current price figures by the corresponding constant price figures and multiply by 100.
Describe in words the main features of the South African economy in 2006, compared with
2005. (Alternatively, you could do the same using the equivalent tables for your country.)
The GDP deflator and the CPI
The (implied) GDP deflator is often seen by users as an alternative measure of inflation to
the Consumer Price Index. What is the difference?
Usually one would expect the two measures to show more or less the same movements on
an annual basis. But there may be differences, sometimes quite large. There are several
possible reasons for the differences as follows:

The CPI measures the change in prices experienced by an average household. The
GDP deflator measures the change in prices in domestic production. In principle,
the latter excludes the direct effect of any change in the price of imports, but
includes changes in the price of exports.

The sources of price data may be different, the weighting is certainly different.

In theory, the CPI is closer to the national accounts deflator for final household
consumption expenditure, but the coverage may not be the same (the CPI may
cover only urban populations, for example, or exclude own-account consumption).
In some countries, the CPI may be used directly to deflate current price estimates
of final household consumption expenditure.

The CPI is a Laspeyres index. The implied GDP deflators are Paasche indices.
SADC Course in Statistics
Module H5 Session 11 – Page 4
Module H5 Session 11
Discussion topic
Interpreting growth rates
Suppose you were offered a choice of salary increase. You can have either
(a) a nine per cent increase this year, followed by a three per cent increase next
year, or
(b)
three per cent this year and a further nine per cent next year.
Which would you choose?
I would choose option (a) because it would give me more in total. I would prefer 9%
followed by 3% rather than 3% followed by 9%.
But suppose GDP rose by 9% one year and by 3% the next. It is curious that most
commentators would consider this to be bad news, a “slow down” in the rate of
growth. On the other hand if GDP rose by 3% and then by 9% it would be
considered good. In both cases the new level of GDP would be a bit ore than 12%
higher than before
It all depends on the extent to which you consider changes in the rate of growth to
represent a trend or not. That depends on how much random variation there is in
the growth rates. In a relatively small economy, random variation is much more likely
than steady growth. A 9 per cent increase in one year does not make it likely that the
growth rate will be even higher the following year. Any further large increase over an
exceptional 9 per cent would be remarkable.
Growth rates in each sector are likely to be much more variable than that of the total
(see the case of South Africa). And the growth rates of individual businesses may
vary even more, especially when starting up. Once a business has reached its capacity
it may not grow much further at all, but continuing in business may be sufficient for
the owner to be satisfied. A large new business in a previously small sector can make
the growth rate very high for a short period, but a similar increase thereafter is only
likely if other new businesses start up.
Conclusion: a 3% increase on top of a 9% increase in a sector is not a fall, and
should not be seen as a disaster. Graphs should show the levels, not the growth
rates, especially if the latter are volatile.
SADC Course in Statistics
Module H5 Session 11 – Page 5