The Economy Hub: Why economists still love GDP

Economists are poring over this morning's Gross Domestic Product (GDP) data which showed the economy grew 2.9 per cent in 2017.

That was less than the 3.1 per cent that the market had expected - as a wet spring dampened agricultural earnings.

But does that really mean anything to ordinary New Zealanders?

With big questions being asked about the value of the GDP data in assessing national well-being The Economy Hub talks to ASB chief economist Nick Tuffley about why it is still important.

By global standards a 2.9 per cent GDP growth rate is a good one. In fact New Zealand has now seen nine years of continuous economic growth.

But as the world grapples with issues around poverty and inequality some are looking to broaden the framework for measuring GDP.

In New Zealand the new Government has charged Treasury with building a new "well-being" framework in time for the 2019 Budget.

Tuffley acknowledges that the traditional measure of GDP does not capture things environmental costs or unpaid work in the home.

But he makes the case for GDP as a vital benchmark for an economy's financial performance relative to peers.

In his review of today's data for the fourth quarter of 2017 Tuffley noted that economic growth was weighed down by a 2.7 per cent fall in agricultural activity.

ASB economist had picked 0.7 per cent growth for the quarter - that came in at 0.6 per cent.

Statistics NZ said cattle and sheep farming and milk production were affected by the volatile weather, with wet conditions in spring followed by drought conditions in early summer.

New Zealand has now seen nine years of continuous economic growth. Picture Getty Images

"This sector performed much weaker than we had anticipated, and we were a little
surprised as according to our own seasonally-adjusted data the fall in dairy production occurred over Q3, Tuffley said.

"Retail spending growth was a key driver of growth, up 1.6 per cent over the quarter led by strong food and beverage services."

How we measure GDP

- Statistics NZ uses Production and Expenditure measures to compile its data

- The production approach: measures total value of goods and services produced in NZ, after deducting cost of goods and services used in the production process.

- The expenditure approach: measures final purchases of goods and services produced in New Zealand. Exports are added, as they represent goods and services produced in New Zealand. Imports are subtracted, as they represent goods and services produced by other economies.