GDP growth figures: What are they? Why does it matter?
The Australian Bureau of Statistics has released the National Accounts today, showing the national GDP growth figure has risen by 1.1 per cent for the March quarter, taking the annual growth rate to 3.1 per cent.
Why all the fuss about National Accounts?
The National Accounts are the Bureau of Statistics' (ABS) best estimates about all the economic activity happening in Australia.
The ABS looks at various aspects of the economy, such as company profits, wages, exports, imports, investment, construction and much more to compile three different estimates.
These are estimates of:
These are merged to produce a "real" GDP number — that is the value of the goods produced and services performed over the year.
Is that it?
This headline "real" GDP number excludes the effect of price changes — inflation or deflation.
This has resulted in a disconnect between "real" and "nominal" GDP.
Real GDP measures how much Australia's economy is producing.
Nominal GDP measures the actual value of what we are producing.
A good illustration is how the surge in export volumes, especially of iron ore and LNG, are boosting real GDP, but the dramatic fall in the prices of these commodities means that Australia is actually getting less money for them than it was before.
This measure is far more important for households, businesses and governments as it better reflects how much income, profits and revenue they are getting, respectively.
Why is everyone talking about this now?
GDP data has increased significance when it is being released in the middle of an election campaign being fought largely on economic management.
If the data is strong, the Government will claim some credit for the economy's strength, if it is weak it will leave them open to attack.
Either way, it is important to remember that there are many parts to the GDP numbers beyond the headline, and the full story at the moment is likely to be much more nuanced than "the economy is going great" or "the economy is falling apart".
OK. So why does this matter to me?
Nominal GDP has recently been much lower than real GDP, which is historically unusual.
It's a major reason why recent federal governments have struggled to reduce the budget deficit.
Aside from the budget implications, the GDP data are important because they give a general sense of whether Australians are seeing rising living standards.
Again, the headline number is not necessarily the most relevant measure of this.
What are the better ways to measure living standards?
GDP per capita is far more important, because a lot of economic growth is simply driven by population increase and that part of growth obviously does not improve the welfare of each individual — it is simply a bigger pie split between more mouths.
An even better measure of individual welfare is "real net national disposable income" per capita.
This adjusts GDP to take into account the prices Australia gets for its exports and what we pay for imports, and a bunch of other things, to give a better sense of whether the purchasing power of Australians is improving or deteriorating — are we getting richer or poorer.
The GDP figures are always important as a health check on how Australia's economy is going.
They do not tell the whole story by themselves — you also need to look at things like unemployment and income distribution to get a better sense of economic wellbeing across the population — but they are a consistent and internationally comparable yardstick.
Source: ABC News