Cheat sheet: What is 'GDP' anyway?
Wednesday, 15 June 2022
The change in GDP or “gross domestic product” is one of the three most-watched statistics produced by Stats NZ every three months, and the last of those to be published each quarter.
The figure is published about 10 weeks after the end of each quarter.
The other two most-watched statistics are the inflation figures and the unemployment (and employment) rates that are also released every three months, but which come out in that order weeks earlier.
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So what is GDP?
There are a few different ways of measuring GDP, but the measure most commonly quoted in New Zealand is the dollar value of all the goods and services produced here, after deducting the cost of goods and services used in the production process so that they are not ‘double counted’.
Think of it simply as a measure of economic activity.
How is it usually expressed?
The figure most people are likely to see quoted is the percentage change in GDP over a three-month period or over a year, after that has been adjusted for inflation.
If that number is positive, it means economic activity has been rising, and if it is a negative number, it means economic activity has fallen.
A technical definition of a recession is when GDP falls for two consecutive quarters.
Is it important?
When GDP is rising, that generally means people are enjoying a better standard of living and there is likely to be more work and lower unemployment.
GDP per capita is one of main ways countries are classified into those that are rich or poor.
Is GDP growth always a good thing?
Traditionally, it has been thought of that way.
But as concerns about the environment have grown, so have calls to measure economic progress in ways that are more related to people’s wellbeing.
A country that made fewer cars for example, but found ways to share them with friends and family so they got much more use of them out, could increase its wellbeing even if GDP might fall a bit.
Is that all GDP figures tell us?
Stats NZ breaks down its GDP figures to reflect the contributions made by different sectors of the economy, such as manufacturing and services, and individual industries and regions, to provide some insight into how the structure of the economy and the importance of different industries is changing.
How are GDP figures used?
Mainly to track economic growth over time and to compare the standard of living in different countries.
Arguably, New Zealand’s GDP figures come out a bit late to be of much use to the Reserve Bank in helping fine-tune monetary policy and work out where to set interest rates, though they can have an influence.