What does GDP stand for and what are the methods used to measure it?
Gross Domestic Product (GDP) is an attempt to measure all the activities of individuals, companies, and governments in a country. In the UK, new GDP figures are released every month, but the quarterly figures that cover a period of three months are most widely monitored.
In a growing economy, each quarterly GDP figure will show a slight increase compared to the previous quarter, indicating that people are engaged in more economic activities and, on average, becoming slightly richer. Most economists, politicians, and businesses prefer to witness a steady rise in GDP since it often translates into increased spending, job creation, higher tax revenues, and better wages for workers.
A decrease in GDP signifies an economic contraction, which is unfavorable news for businesses and workers. If GDP falls for two consecutive quarters, it results in a recession, which can lead to pay cuts and job losses.
How is it measured?
There are three ways to measure GDP:
Output: This measures the total value of goods and services produced by all sectors of the economy, including agriculture, manufacturing, energy, construction, the service sector, and government.
Expenditure: This measures the value of goods and services purchased by households and the government, investment in machinery and buildings, as well as the value of exports minus imports.
Income: This measures the value of income generated, mostly in terms of profits and wages.
In the UK, the Office for National Statistics (ONS) calculates GDP using all three measurements. However, early estimates typically rely on the output measure, which is based on data collected from thousands of companies.
Contact us for more information.
London: 020 7060 1811