Gross Domestic Product estimates Lunchtime presentation 25 May 2016 Unit C.2 National accounts production Lunchtime presentation - 25/5/16

Content lunchtime presentation What is GDP and why is it important? Advancing the GDP flash estimate for EU and EA Further information on GDP estimations and related data Lunchtime presentation - 25/5/16

A. What is GDP and why is it important? A1. The System of National Accounts A2. Gross Domestic Product (GDP) (1) A3. Gross Domestic Product (GDP) (2) A4. Why is GDP important ? Lunchtime presentation - 25/5/16

A1. The System of National Accounts Describes all economic flows (transactions) and changes in stocks in the economy is an accounting system ( financial position of institutional sectors) with links to the basic theory of economics ( supply and demand, prices, labour input…) enables comparisons between countries and years does not aim at describing well-being (e.g. GDP  domestic economic activity) -System of national accounts is an accounting system  concentrates on tracing the economic flows and changes in stocks of institutional sector like non-financial corporations, households and General Government. - GDP is one variable in the System of National Accounts -SNA2008 para 1.75: "GDP is often taken as a measure of welfare, but the SNA makes no claim that this is so and indeed there are several conventions in the SNA that argue against the welfare interpretation of the accounts." -SNA1993 para 1.2: "Certain key aggregate statistics, such as gross domestic product (GDP), that are widely used as indicators of economic activity at the level of the total economy, are defined within the System, but the calculation of such aggregates has long ceased to be the primary purpose for compiling the accounts."

A2. Gross domestic product (GDP) (1) is perhaps the most important economic activity indicator and widely used in comparisons (GDP/capita) describes the value added (VA) created in production and selling of products (= national value added chain) summarises the development on transactions concerning products: - domestic production/selling of final products - the use (buying) of final products - incomes generated in producing and selling GDP: On the national level: describes the value added chain from first to last producer until a final product is sold to final user …is counted both at current price and in volumes …should also include hidden economy (transactions paid) …should also include illegal activities (transactions paid) …does not include household 'homework' production (no transactions paid)

A3. Gross domestic product (GDP) (2) Three methods for GDP estimation P: production approach = output (P.1) - intermediate consumption (P.2) (+ taxes less subsidies on products (State, e.g. VAT)) E: expenditure approach = final consumption expenditure (P.3)+ gross capital formation (P.5) + exports (P.6) – imports (P.7) I: income approach = compensation of employees (D.1) + gross operating surplus (GOS) (+ taxes less subsidies on imports & production (State)) -P: Basically, GDP derives from the value added. In the production approach GDP is compiled with producers' data as the difference between output and intermediate consumption. To get to GDP at market prices one has to take into accounts state's intervention and add taxes less subsidies on products. -E: Next, GDP is also equal to the sum of the final uses of goods and services, i.e. the sum of the final consumption exp + gross capital formation + net exports -I: Finally, one can also get to the same GDP by the incomes generated in the production/selling process. Producer units distribute such incomes to Labour (D.1) and to the entrepreneur (GOS). GOS is often interpreted as the compensation for the Kapital used in the production

A4. Why is GDP important ? The development of domestic economic activity is crucial for the development of employment and hence for households'/citizens' income flows In a long economic recession time - first income flows may drop dramatically - later the asset values may drop dramatically May be followed by unrest, extreme movements (NB 1930s depression with a prior stock market crash) In the good times the companies' stock values aim at anticipating the development of profits ( GOS) -A lot of the measures for avoiding the bank crisis in the EU and for aiming to get economy healthy again is connected to 190s Great Depression. At that time, there was a stock market crash, bank crisis (people withdrawing there money from banks in mistrust for the banks) and a long deep depression. Some historians have connected the Great depression as a background reason for the rise of totalitarian leaders and to the burst of the WWII.

B. Advancing the GDP flash estimate for EU and EA Why introduce GDP t+30 estimates for EU and EA? Content of the GDP t+30 project Quality acceptance criteria Test estimates First GDP t+30 release Further communication and information Lunchtime presentation - 25/5/16

B1. Why introduce GDP t+30 estimates for EU and EA? User needs Key users – European Commission, ECB Policy making Monitoring economic situation Forecasting Other users Logical next step after GDP t+45 estimates Fits in release pattern Principal European Economic Indicators Releases at 30 – 60 – 90 days Lunchtime presentation - 25/5/16

B2. Content of the GDP t+30 project Preparation of test estimates (with TF members) Development of quality acceptance criteria Development methodology for Eurostat and country estimates Development of a communication plan Lunchtime presentation - 25/5/16

B3. Quality acceptance criteria (1) Purpose Assessment of test estimates Quality criteria Unbiased GDP t+30 estimate Average revision between -0.05 and +0.05 ppt Max 67% revision in the same direction Lunchtime presentation - 25/5/16

B3. Quality acceptance criteria (2) Quality criteria (continued) Limited average absolute revision Max 0.10 ppt at t+45 Max 0.13 ppt at t+60 Sufficient coverage 70% GDP for 2015 test quarters Availability communication plan Lunchtime presentation - 25/5/16

Lunchtime presentation - 25/5/16 B4. Test estimates (1) Purpose To assess expected quality of future GDP t+30 estimates Test quarters Real time estimations for 2014Q1-2015Q4 Retrospective estimations for 2012Q1-2013Q4 Lunchtime presentation - 25/5/16

Lunchtime presentation - 25/5/16 B4. Test estimates (2) Results EU test estimates Lunchtime presentation - 25/5/16

Lunchtime presentation - 25/5/16 B4. Test estimates (3) Conclusions Successfully passing all a priori quality criteria Better than market forecasts at t+30 (tested for real-time quarters) Smaller revisions than the published GDP t+30 for the US But: revisions t+30  t+45 will be larger than revisions t+45  t+60 Lunchtime presentation - 25/5/16

B5. First GDP t+30 release (1) Introduction Introduction GDP t+30 on 29 April 2016, next publication dates: 29/7, 31/10 Name: preliminary GDP flash estimate GDP t+45 estimates will remain Pre-announcement by two videos and one page methodology document http://ec.europa.eu/eurostat/news/earlier-release-of-european-gdp-growth-rates Commissioner's video Lunchtime presentation - 25/5/16

B5. First GDP t+30 release (2) Results Revisions and coverage in line with results test estimates Lunchtime presentation - 25/5/16

B5. First GDP t+30 release (3) Lunchtime presentation - 25/5/16

B5. First GDP t+30 release (4) Media attention Throughout the day e.g. Guardian, business – live: Lunchtime presentation - 25/5/16

B6. Further communication and information Publication of statistical working papers on website Overview of GDP flash estimation methods (guidance for countries) EA and EU GDP flash estimates at 30 days (Eurostat methodology) Summary EA/EU GDP flash estimation methodology (all languages) Publication and conferences Article in June issue Eurona Paper and presentation for IARIW conference Conference new statistical techniques Lunchtime presentation - 25/5/16

C. Further information on GDP estimations and related data ESA 2010 transmission programme ESA 2010 derogations up to 2020 Sequence of quaraterly GDP estimations Deatailed annual breakdowns Where to find additional information Lunchtime presentation - 25/5/16

C1. Member States GDP related data ESA 2010 - Transmission programme of data http://ec.europa.eu/eurostat/web/products-manuals-and-guidelines/-/KS-01-13-429-3A-C Lunchtime presentation - 25/5/16

C2. Member States derogations Commission Implementing Decision 26.06.14 http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.2014.195.01.0001.01.ENG Lunchtime presentation - 25/5/16

C3. Sequence of GDP estimations Flash estimates (only last Q, CDA data) T+30: Preliminary GDP Flash estimates (EU/EA) T+45: GDP Flash estimates (including MS data) Regular estimates QNA and ANA (all series) T+65: GDP and main aggregates (output, exp) T+75: Employment and further aggregates (inc.) Considered: Reintroduction of T+90 update Database release (discontinued since ESA 2010) Lunchtime presentation - 25/5/16

Lunchtime presentation - 25/5/16 C3. Where to find QNA data Lunchtime presentation - 25/5/16

C4. Detailed annual breakdowns Main aggregates by industries Gross value added, employment compensation of employees, loans and wages Household consumption by purpose (COICOP) Estimation of European aggregates in Oct/Nov Asset by industry (Stocks, flows) Balance sheets by assets and sector Lunchtime presentation - 25/5/16

Lunchtime presentation - 25/5/16 C4. Where to find ANA data Lunchtime presentation - 25/5/16

C5. Additional information Website: National accounts (including GDP) QNA Release calendar http://ec.europa.eu/eurostat/web/national-accounts/overview ESA 2010 and SNA 2008 and Main methodological references http://ec.europa.eu/eurostat/web/national-accounts/methodology Estimation European main aggregates http://ec.europa.eu/eurostat/web/national-accounts/methodology/european-accounts/estimation-european-main-aggregates Key legal documents (including links to Previous Legislation): http://ec.europa.eu/eurostat/web/national-accounts/legislation Lunchtime presentation - 25/5/16

Gross Domestic Product estimates Lunchtime presentation 25 May 2016 Unit C.2 National accounts production