Economics made simple (2) Gross Domestic Product

| 08/04/2014 | 8 Comments

Gross domestic product (GDP) is a measure of the value of all the goods and services produced over a time period and presented quarterly and annually.  By comparing the figures for two or more quarters, it is possible to tell whether the economy is growing or shrinking. For example two consecutive quarters of shrinkage (often referred to as negative growth) is defined as a recession.

Because of the huge amount of data that needs to be collected, GDP figures are often revised upwards or downwards, sometimes up to a year later and so are, at best, an estimate.recessions

By dividing the GDP by the population,  you end up with a figure (GDP per head, or per capita) which allows you to compare the productivity of one country against another.   You can also use it to compare current performance against past years, either without adjusting for inflation (nominal GDP) or – more realistically – with suitable adjustments (real GDP).  For example,  this graph uses real GDP per capita to compare different UK recessions (showing how slow the current recovery is).

 

Public Spending
Comparing public spending to total GDP allows you to understand what proportion of GDP is represented by public sector activity,  and how that changes over time.

In most European countries, public spending is around 41-47% of GDP.  France, Belgium and Denmark have a higher proportion of public spending with over 50%  of GDP.

On average, over the past five years, the UK’s public spending has been 45.4% of GDP, while Scotland’s public spending  has averaged 44.2% of Scotland’s GDP (including geographical share of North Sea revenue)

 

eurodebtDebt/GDP Ratio
By comparing a country’s debt to its GDP and working out the percentage, you get an indication of whether a country is dangerously indebted, and how far its indebtedness is growing compared to its productivity.

The financial crisis has left a number of European countries struggling with debt, and the debt/gdp ratio shows how they compare (2012 Eurostat figures)

Using the per capita measure allows you to work out how much of the debt burden falls on every individual. For the UK as a whole, that figure works out at approximately £28,000 per person.

GDP and Scotland.

Scotland’s GDP can be calculated either with or without our geographical share of oil and gas revenues.
Without those revenues, Scotland stil has a very similar GDP to the average for the UK as a whole.  In 2012/13, Scotland’s onshore-only GDP per capita was £20,571, compared to £20,873 average for the UK.

Scotland’s oil and gas revenues are a bonus on top of our onshore GDP. If we include our share of North Sea oil and gas revenue, our total GDP per capita figure to £26,424.
This similarity in GDP per capita between Scotland and the rest of the UK economies is one of the key factors that demonstrates  that a currency union can work.  The Eurozone crisis arose because the high GDP of Germany and the much lower  GDP of countries such as Greece led to massive imbalances within a single currency union.  This will not be the case with Scotland and the rest of the UK after independence. In fact Scotland’s higher GDP per head and higher exports  will help keep the pound sterling strong.

See also Economics made simple: Debt and Deficit
Scots exports could be worth almost £100 billion.

 

 

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  1. Economics made simple (2) Gross Domestic Product - Speymouth | 08/04/2014
  1. Anne Mackenzie says:

    I wonder how much, if any, of the oil revenue has been spent in Scotland.

  2. Jim Osborne says:

    I certainly hope that an independent Scotland is not going to use GDP as the only or even the main measure of our progress. Lets remember that GDP doesnt just measure goods (and services) it also measures “bads” – so, for example, the cost of rebuilding something that has been destroyed is counted as a positive contribution to GDP but the destruction is not deducted. Reliance on GDP is not going to help us to become good stewards of the future.

    • Andy Lippok says:

      I agree Jim. It get’s worse too when you think that spending money on (say) building more prisons also adds to a “healthy” GDP. Is that warped thinking or is that warped thinking?!?!

  3. Capella says:

    I agree with Alexandra. I would like to see a comparison of like with like. What is the average GDP for the UK excluding oil and gas?

  4. Great article, although I wonder if the comparative GDP per capita of UK is inclusive of 100% share of North Sea revenue?

    Looking through the GERS figures, all UK numbers automatically include a 100% share of North Sea revenue, meanwhile Scotland’s figures break up into the three scenarios regarding North Sea. This is very misleading, as it puts the UK figures into a stronger position than they would be post-independence, once Scotland is apportioned its geographical share.

    It would be highly interesting to see the comparison between GDP per capita between Scotland & UK with a geographical share applied to both.

    • Gordon MacIntyre-Kemp says:

      You are correct the UK figures always have the higher contribution from Scotland so they are not always considering like with like.

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