FEATURE ARTICLE: FORTHCOMING CHANGES TO THE CALCULATION OF CONTRIBUTIONS TO GROWTH IN THE NATIONAL ACCOUNTS


INTRODUCTION

Due to non-additivity of chain volume measures prior to the reference year, contributions to growth of the components of Gross Domestic Product (GDP) do not always add exactly to the growth in GDP. Non-additivity is the same for quarterly and annual estimates and the discrepancy increases the further away the volume estimate is from the reference year. Although the volume estimates of the components of GDP do not generally add to volume GDP, it is possible to calculate contributions to growth for each volume component that are additive to volume GDP growth. This reduces the inconvenience of non-additivity in volume aggregates by allowing analysts to observe the relative importance of individual GDP components to overall GDP growth over time.

A methodological change to the contributions to growth calculation will be applied to measures in the 2011-12 issue of the Australian System of National Accounts (cat. no. 5204.0) and the September quarter 2012 issue of Australian National Accounts: National Income, Expenditure and Product (cat. no. 5206.0). This change will result in contributions to growth that sum to the growth rate of GDP in periods prior to the current reference year. The change applies to components of GDP compiled using the expenditure approach only.


THE CURRENT METHOD

The current method for compiling contributions to growth calculates the value of an aggregate in one period minus the value of that aggregate in the previous period, divided by the value of GDP in the previous period. This can be expressed as:

100 * (A_t - A_t-1) / GDP_t-1

Where:

• A_t is the value of aggregate A in the period under consideration
• A_t-1 is the value of aggregate A in the previous period
• GDP_t-1 is the value of GDP in the previous period

For current price estimates, components are additive to totals and therefore the contributions to growth are also additive. For volume estimates, chain linked series are referenced to the latest base year, and the coinciding of the reference year and base year generates additivity in the subsequent periods. This allows the contribution by a component to the growth of GDP between two periods to be readily obtained. When these conditions are not met (i.e. for all years prior to the reference year) there is no additivity in the volume estimates, and the further away the estimates are from the base year, the less additive the contributions to growth calculations become.

The current method will continue to be applied to measures in current price terms and for volume estimates where a current price quarterly estimate does not exist, such as components of GDP compiled using the industry value added approach.


THE NEW METHOD

The new method to calculate contributions to growth for a given aggregate 'A' can be expressed as:

100 * ((PY^A_t - PP^A_t) / PP^A_t) x (PP^A_t / PP^GDP_t)

Where:

• PY^A_t is the quantity of an aggregate in the current period, in previous period prices
• PP^A_t is the quantity of an aggregate in the previous period, in previous period prices
• PP^GDP_t is the current price value of GDP in the previous period

This method involves calculating a current period quantity in prices of the previous period and the corresponding quantity in the previous period in prices of the previous period. These are calculated for all components, aggregated and then chained. These are then weighted by the share of the value of the aggregate in the previous period as a proportion of GDP in the previous period.

The new contributions to growth method takes advantage of the fact that these two quantity components (PY^A_t and PP^A_t) are additive for any aggregate and that the movement of the chain volume estimate of the aggregate is equivalent to the ((PY^A_t - PP^A_t) / PP^A_t) calculation.

Additivity for contributions to growth exists for the years where the statistical discrepancy is zero, effectively 1995-96 onwards, by using GDP expressed in the prices of the previous year. For the period 1986-87 to 1994-95, where the statistical discrepancy is not zero, the result is close to additive but not exact because the statistical discrepancy cannot be expressed in prices of the previous year. Additionally, quarterly contribution to growth estimates will not add to GDP growth due to the existence of a statistical discrepancy between the three quarterly measures of GDP. Nonetheless, the introduction of the new method results in significantly improved additivity on a quarterly basis compared to the current method


CONCLUSION

The contributions of the components to the growth in volume of GDP, particularly the expenditure components, are widely used. The introduction of the additive methodology will assist users in understanding the relative importance of individual GDP components to overall GDP growth as well as variations in relative importance over time. The new method also ensures the ABS now aligns with recommendations from the International Monetary Fund and the OECD on calculating contributions to growth.