GDP Quarterly National Accounts: Quality and Methodology Information

Methods used to produce GDP data

Understanding GDP

Gross domestic product (GDP) is one of the best known indicators of economic activity and is widely used to monitor economic performance. The monetary value of GDP is widely used to represent the size of an economy, and its growth rate in real terms (also referred to as volume terms and adjusted for inflation, explained later) is widely used as an indicator of the current strength of the economy.

There are three ways to measure GDP which should all theoretically produce the same result: output, income and expenditure. Each of these allows GDP to be broken down into different categories. Headline GDP growth rates for Scotland are updated twice each quarter. The GDP First Estimate uses the Output approach and only reports onshore GDP growth in real terms. The GDP Quarterly National Accounts uses all three approaches, reports GDP for both the onshore and wider economy, and also includes the cash value of GDP.

This report mostly covers the Expenditure and Income approaches to GDP and the process of balancing the different estimates to reach a single total for each period of time. Information on the methods used for the Output approach is available in a separate guide for GDP Output in real terms.

This paper presents many definitions and concepts in a deliberately simplified manner. Good sources of more detailed information are the Office for National Statistics and the Eurostat: statistics explained website. A glossary of some key terms is included at the back of this paper.

What is GDP?

In simple terms, GDP measures the size of an economy based on the production of goods and services in a country or region during a particular period of time. There are three different ways to understand this in more detail, breaking economy activity down in terms of either production (or output), expenditure and income.

GDP is defined in the UN System of National Accounts, which sets out a framework to enable consistent measurement across the world. A slightly adapted version of the framework – the European System of Accounts (ESA 2010) – is produced by Eurostat, the statistical agency of the European Commission, for use by EU member states and still in use by the UK following EU exit. These systems allow GDP statistics to be compared internationally and over time.

What does GDP not cover?

In general, GDP only covers economic transactions in produced assets and services (such as where a sale occurs or there is a change in ownership). There are many activities that have an economic or social value that are not included in GDP, such as unpaid family care. For this reason and many others, GDP is not a direct measure of national well-being.

GDP also does not cover things such as income from investment, earnings from abroad, or the redistribution of income through taxes and social benefits. These kinds of economic activities are included in alternative measures such as Gross National Income (GNI) and Gross Disposable Household Income (GDHI).

It is important to emphasise that the national accounts are estimates of an underlying economic reality, based on statistical surveys, forecasts and models; they are not compiled through "accounting" in the common sense of the word. While terminology and concepts are used which are similar to those used in business accounting, the definitions often quite different in practice.