GDP — What it is and how it’s calculated

Thursday, 18 December 2025

EXPLAINER: Stats NZ is expected to confirm today that the economy is growing again.

Banks forecast it will report that gross domestic product (GDP) rose by close to 1% in the three months to the end of September, after its shock 0.9% drop in the previous quarter.

Whether or not that proves optimistic, the figures are ammunition for politicians in their never-ending war of words over whether the economy is being managed well, or mismanaged.

But out of the four most-watched economic indicators produced by Stats — which also include unemployment, inflation and immigration — GDP is perhaps the one most people would find hardest to define.

So, what is it?

GDP is generally regarded as the best single indicator of economic activity.

Indeed, when reporting changes in GDP and to reduce jargon, news media including The Post will often simply report economic activity rose or fell by whatever the amount was.

It is a measure of the value of all of the goods and services produced in the country, Stats NZ macroeconomic statistics manager Jason Attewell explains.

But it avoids “double-counting”, so if a company produces a plank of wood, another turns that into a cupboard, and a third puts that into a kitchen in a new house build, it is the value-added at each stage of the production process that counts towards GDP.

What else?

The figure is adjusted for inflation, so if Stats NZ reports that GDP rose by 0.6% in a quarter, that is on top of any growth that would just have been expected as a result of rising prices.

The figure Stats NZ publishes is also seasonally adjusted, to take into account the fact that the economy doesn’t normally grow at the same pace during each quarter of the year.

Two of the biggest seasonal variations are due to the milking season, which peaks in September and October, and international tourism which is at its highest between December and February.

Stats NZ aims to smooth out the peaks and troughs caused by those sorts of factors in its quarterly updates.

Why does Stats NZ estimate GDP?

It’s required to do so by international organisations such as the United Nations, the OECD and the International Monetary Fund, Attewell says.

“There's a base level of statistical data that you have to produce.”

GDP figures are of use to international credit-ratings agencies such as Moody’s and Standard & Poor’s, which want to be able to tell if an economy is getting stronger or weaker.

The figures are also of use to the Treasury.

It needs to be able to forecast the future tax-take in order to work out how much the Government will be able to spend and how much it may need to borrow.

Another “customer” is the Reserve Bank, which regularly reviews whether monetary stimulus or tightening is justified to smooth out a business cycle and keep inflation stable.

Attewell says Stats NZ also sees the general public as an important audience.

“Part of our role is to produce independent, trusted, unbiased statistics so that New Zealanders can see what’s really going on and they can hold the government of the day to account.”

How is it calculated?

It is estimated from all of the economic data Stats NZ collects, including surveys it conducts to get information directly from the country’s largest firms.

Other inputs include GST returns, information on building consents, and even how many litres of milk are collected from farms.

“Hundreds of data sources go into the quarterly GDP result,” Attewell says.

But it is still an estimate — not gospel.

No need to worry about it, but there are actually two measures of GDP. One calculated from sources of information on production and another derived from expenditure.

It is the production figure that you will see quoted in the media.

In theory, they should both add up to be the same over the long run, but they can be different from quarter to quarter, and not just due to measuring errors.

Attewell points out that if businesses are building up or running down inventories of unsold goods in their warehouses, they won’t quite tally at any point in time.

So how accurate are the figures?

Not always completely accurate immediately when published. We know this in part because it is not unusual for Stats NZ to revise its GDP estimates months or even the following year after they are first published.

In 2023, for example, it revised down the growth it had previously estimated in the three months to the end of June that year from 0.9% to 0.5% for that quarter.

Revisions have even been known to retrospectively instate or cancel shallow technical recessions, which are defined as two consecutive quarters of GDP decline.

Attewell stresses revisions are “a feature and not a bug” of the national accounts though.

Stats NZ’s understanding of past economic activity is always going to improve as more data comes to hand, he points out.

It can update the figures once it has the benefit of being able to look through companies’ annual audited accounts, or has a better idea of how seasonal trends are changing.

The Covid pandemic changed consumer and tourist behaviours, complicating the task of estimating seasonal adjustments, but Attewell says those are now starting to normalise.

What about the ‘balancing item’ mentioned in the last quarterly figures?

That is all part of getting the quarterly GDP figures to add up over the long run.

The balancing item is an observed inconsistency in the data — often in part related to the complexity of seasonal adjustments — that has been carried forward and is yet to be allocated to a particular quarter.

It’s another reason not to get too hung up on whether GDP is up or down on expectations by a small fraction of a percentage point.

The consensus of economists is that it contributed significantly to the size of the big dip in the June quarter GDP figure, for example.

Is GDP growth really a good thing?

An age-old question. It is a measure of economic activity, not social wellbeing.

It doesn’t distinguish between what might be regarded as “good” or “bad” economic activity.

But increases in GDP are associated with a higher standard of living and needn’t necessarily be correlated with increased carbon emissions or environmental degradation more generally, for example — although they often may be.