GDP up 3.3% y/y or 2.9% annual?

After yesterday’s post regarding the national GDP (see here) I’ve had a few questions relating to my headline 2.9% annual growth figure and the widely quoted 3.3% y/y number; confusion reigns!

Lets take a look at some detail of the GDP seasonally adjusted data and consider the different ways we can analyse it.

Q Actual $bn Q/Q % y/y Annual Actual $bn Annual Year % Annual FY %
2014 Q1 398,239 0.9 3.0 1,573,755
Q2 400,248 0.5 2.8 1,584,578 2.5
Q3 401,805 0.4 2.6 1,594,924
Q4 403,758 0.5 2.3 1,604,050 2.7
2015 Q1 407,476 0.9 2.3 1,613,287
Q2 408,342 0.2 2.0 1,621,381 2.3
Q3 412,264 1.0 2.6 1,631,840
Q4 415,168 0.7 2.8 1,643,250 2.4
2016 Q1 419,520 1.0 3.0 1,655,294
Q2 421,725 0.5 3.3 1,668,677 2.9

GDP is calculated on a quarterly basis but clearly over the course of a year (be it a calendar or financial year) the total GDP will be the sum of the 4 relevant quarters.

Our first measure is simply quarter/quarter – how much did GDP increase this past quarter over the previous quarter? Our most recent result for 2016 Q2 is +0.5%.

Next we have year/year – how much was this quarter’s GDP higher than the same quarter last year? For 2016 Q2 the result is 3.3% higher than 2015 Q2. (note that this will also be the sum of the four intervening Q/Q changes; although rounding can make it slightly different when using just one decimal place)

But over the course of a year we need to add the four quarterly results. Our annual change for 2015 therefore is the difference between the sum for all quarters of 2015 and the sum of the four quarters of 2014; in this case +2.4%. 

When we consider financial years we are summing the quarters from Q3 of the previous year to Q2 of this. Therefore for the financial year 2015-16 GDP growth was +2.9%; the difference between the summed totals as at Q2 2015 and Q2 2016. (note that this will also be the average of the four previous quarters’ year/year changes)

This measure is very important as government budgets will generally be based upon forecast growth over the course of the financial year rather than simply how much greater Q2 GDP this year was than Q2 GDP last year. For example, the Federal Budget for 2016-17 forecast Real GDP for 2015-16 at +2.5% so this result (+2.9%) will be a positive for the budget outlook.

Below is a chart which hopefully makes clear the differences. This relates to Queensland State Final Demand where the q/q change was +0.7%, the y/y was +0.4% while the annual rate was -1.2%.

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