A major surge in New Zealand's economy defies the merchants of doom. Video / NZ Herald
The Data Set is a new analysis column exploring and explaining the data that affects our lives. Today, NZME’s head of newsroom data Chris Knox digs into GDP - gross domestic product.
ANALYSIS
Once a quarter on a Thursday at 10:45am, political and economic attention is fixed on Stats NZ.
The Quarterly GDP team has solved the latest iteration of "the world's biggest Sudoku puzzle" and are ready to announce the latest figures.
Would a second fall in quarterly GDP mean New Zealand was in a recession?
On September 15, GDP did not fall again, it was up 1.7 percent, after a 0.2 percent drop the previous quarter.
But what is GDP and why is it like a "Sudoku puzzle"?
The IMF says "GDP has become widely used as a reference point for the health of national and global economies. When GDP is growing, especially if inflation is not a problem, workers and businesses are generally better off than when it is not."
New Zealand's GDP for the year to June 2022 was $360 billion.
GDP stands for gross domestic product. Theoretically, it is the value of every single good or service produced in a country that is sold to a final user during a certain time.
The groceries you purchased make up a small part of this number. If you happened to buy a TV, that's included. Trees exported overseas as logs are included. Timber milled into lumber and used in houses is included. The value of the 'service' a homeowner gets from living in that house is included.
Not all productive activities are included in GDP. Unpaid work, such as work done in the home or by volunteers, is not included. Making a jacket and selling it online is included but making a jacket for your children is not.
Summing up all the purchases you, and the rest of New Zealand, make is a measure of the size of our economy.
This approach originated during the Great Depression in the 1930s and was further developed while trying to measure the impact of World War II on the economy.
GDP estimates are now part of a set of global standards which enable comparisons between countries over time.
This can be used to get a sense of how Covid-19 has impacted different economies.
Incidentally, New Zealand does not have an official definition of what constitutes a recession.
The commonly used "two consecutive quarters of negative GDP growth" originated in the United States but is not the official definition there either. It is a rule of thumb that is often, but not always, a feature of officially designated recessions in the US.
GDP is calculated in three different ways. Roughly speaking, the value of all the goods and services produced is the same as the final purchase value of the same goods and services which is also the same as the total amount of income associated with their production.
Having three different, theoretically identical, measures of the economy is a key part of ensuring the accuracy and consistency of GDP calculations.
The benefit of calculating GDP doesn't come from the singular headline number. Summing up each industry's contribution to the GDP means we know how the different parts of the economy are changing.
In 1978, Construction was the largest single contributor to New Zealand's GDP. In 2022, it was Professional, Scientific and Technical Services.
In an article for International Sudoku Day, Australian statistician, Robert Ewing, likened the process of calculating each industry's economic contribution to a giant sudoku puzzle.
What we spend at the supermarket is one part of the calculations that determine our GDP. Photo / NZME
All the different industries make up the rows of the puzzle and the different types of products make up the columns. Each square represents how much of a product is used in a certain industry. For example, the value of timber used in furniture making. And the value of all the products needs to sum to the value added by all the industries.
The numbers needed for this giant puzzle come from us. Stats NZ uses a combination of surveys and administrative data to calculate GDP. Industries with a small number of organisations, like heavy construction which includes dams, can provide more bespoke data.
Surveys like the household expenditure survey and the business activity survey are critical to understanding what is happening in the New Zealand economy. The households and businesses that complete these surveys help ensure the rest of us know what is going on.
