TF meeting 7 October '15 Luxembourg Task Force on GDP Flash estimates at t+30 days 7. Methodology for Eurostat flash estimates TF meeting 7 October '15 Luxembourg

Content Terminology for flash estimates The EU/EA national accounts, regular estimates The methodology for the EU/EA t+45 and t+30 flash estimations TF GDP t+30, item 7

1. Terminology (1) The need for reliable and timely quarterly European national accounts figures is a continuous request from the users of the data STS indicators can help the users in forming a partial picture of the economic development QNA: a more complete picture where one can proportionate variables to the whole economy Easier to have a reasonably reliable early estimate on aggregate GDP than on its components

1 Terminology (2) Flash estimate of quarterly EU/EA GDP: gives an earliest picture of the development of the economy; can be used in accordance with other national accounts concepts; is produced and published as soon as possible after the end of the quarter; is based on a less complete set of information than traditional quarterly accounts GDP. The aim is to estimate European GDP as in later regular calculations, but with less available data  differs both from forecasts and leading indicators

1 Terminology (3a) The differences between flash and later estimates: Timeliness: flash estimates are available earlier (in 30-45 days) than the traditional estimates. Accuracy: there is a trade-off between timeliness and accuracy. Flash estimates are in general less accurate than the traditional ones. However, the loss in terms of accuracy is kept as small as possible.

1 Terminology (3b) The differences between flash and later estimates: The number of break-down variables covered by flash estimates is usually more limited. Flash estimates are based on a more limited set of information. Estimation included: due to the lack of direct information, flash estimates may include parts or areas that are estimated by statistical methods

2. The EU/EA national accounts, regular estimates (1) compiled following an indirect approach based on the data gathered on the Member State rather than surveying the same variables only directly at the European level The transmitted MS national accounts data are based on primary statistical data sources that the 28 NSIs have gathered for their country a product of Eurostat, but at the same time they are a product of the whole ESS (28 NSIs + Eurostat)

2. The EU/EA national accounts, regular estimates (2) HARMONISED MS data ESA2010 regulation guides the countries in order to achieve harmonised national accounts data from each of the Member States HARMONISED deadlines for data transmissions ESA2010 Transmission Programme regulation sets out the deadlines for the national data (A/Q) transmissions to Eurostat

2. The EU/EA national accounts, regular estimates (3) In addition to ESA2010 main principles: double book keeping (simultaneous booking of flow and stock) quadruple entries (both buyer and seller accounts) Moving base year volume calculations with chain-linking other national accounts related methods (quarterly matching with annual (annual constraint), three GDP approaches to give equal quarter GDP (contemporaneous constraint)  A characteristic additional feature is the aggregation of Member State data for each variable

2. The EU/EA national accounts, regular estimates (4) Aggregation of MS volume data in CUP: Annual data: aggregation trivial, however, balancing; three approaches of GDP etc. Regular quarterly calculation rounds: e.g. for t+65 Q aggregated for available MSs, after which the quarterly figures are matched with annual  Chow-Lin regression between quarterly indicator and the annual level, the same model applied for the last quarters without annual figure (e.g. 2015Q1, Q2) GDP (prod): a contemporaneous constraint

2. The EU/EA national accounts, regular estimates (5) Aggregation of MS volume data in PYP: First in annual data, on annual PYP levels  CLV Second in regular quarterly calculation rounds: e.g. for t+65 Q aggregated quarterly PYP levels for available MSs, the quarterly figures are matched with annual GDP PYP (prod): a contemporaneous constraint Finally in volumes  Chow-Lin regression between quarterly indicator and the annual level, the same model applied for the last quarters without annual figure (e.g. 2015Q1, Q2)

3. Methodology for flash estimations (1) Aggregation of MS SA volume data in t+45 and t+30: Many countries transmit only SA clv QoQ (and YoY) volume growth rates Neither quarterly CLV, PYP volume levels nor CUP (SA) transmitted How to aggregate volume growth rates of MSs in the flash t+45 and t+30? (NB: MSs transmit 4 SA QoQ and YoY growth rates but not new revised SA level series for Q-4)

3. Methodology for flash estimations (2) Background, think of annual chain-linking: In case of Laspeyres moving base year chain-linked volumes, the (clv) volume growth is calculated by proportionating the PYP_Yt / CP_Yt-1 The base year is always year t-1, the CP weights of the components in the aggregate can be used in aggregating the components (or summing up the contributions from components)  WGR (weighted growth rates) method; contribution to aggregate growth

3. Methodology for flash estimations (3) NOTATION: , , aggregate X; quarter c, year y; measures with only y refer to annual ; implicit chained-volume deflator ; annual chain-linked vol growth, the latter is the Laspeyres type volume index country (or component) i, variable x

3. Methodology for flash estimations (4) Annual: country i vol growth contribution of country i in aggregate X’s vol growth

3. Methodology for flash estimations (5) Quarterly (Handbook of QNA, Eurostat 2013, 200-204) suggest as one of the methods for growth contributions: WGR method with annual (y-1) weights, QoQ growth rates = contribution of country i QoQ growth in aggregate X’s QoQ chain-linked volume growth

3. Methodology for flash estimations (6) The Handbook suggests to be cautious: The resulting contributions of WGR method are not necessarily exactly additive in the quarterly case: the problem is e.g. the QoQ growth rate for Q1; (Q1/Q-4)-1, where Q1 has a base year y-1 but Q4 a base year y-2 The country proportions are, however, rather stable in the EU: the difference between the EU GDP QoQ and the WGR aggregated QoQ for the EU in 2010Q1 to 2015Q2 was at maximum on absolute value 0.0003 (In addition, HB of QNA (Eurostat 2013, 200-204) suggests a correction factor, , by which each of the QoQ contributions can be multiplied, to achieve the same results as Additive Volume data method with exact results )

3. Methodology for flash estimations (6) Summa summarum: In the EU/EA t+45 flash (since 2013) and in the tested preliminary t+30 flash, the country SA QoQ growth rates are aggregated by WGR method with annual (y-1) weights: Optional step 1: In case a major MS would be missing, compute estimates for the GDP growth by using - available STS indicators (nowcast 3rd month) - ESI and country past GDP in an ARIMAX model - professional forecasts for comparison

3. Methodology for flash estimations (7) Optional step 2: In case of a difficult rounding situation to one decimal publication level (gr ~ x.x5), a growth estimate for the missing coverage part of the EU/EA may be computed by using ESI together with past GDP in an ARIMAX model Finally, the obtained EU/EA QoQ growth rate is applied to the last SA level of the EU/EA The YoY growth rate of the EU/EA is derived from the obtained level SA series (the YoY growth rates of the MSs may be used as a counter check).

- Thank you for your attention Task Force on GDP Flash estimates at t+30 days - Thank you for your attention on Item 7 Methodology - Questions, comments are welcomed … TF GDP t+30, item 7