Sancherina SALLE, Chief Economist Sam BRAZYS, Senior Economist Dr. Matarr NJIE, Economic Advisor

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1 Sancherina SALLE, Chief Economist Sam BRAZYS, Senior Economist Dr. Matarr NJIE, Economic Advisor

2 Outline What is GDP? Importance of GDP The 3 methods of calculating GDP How to Read GDP tables? General terms regarding GDP Main GDP data sources/providers

3 What is GDP? Definition: It is a measurement in gauging the performance or size of an Economy in a period (monthly, quarterly, or annually) GDP measures domestic production as the total of value added by all productive activities. It records the value of domestic output and the goods & services used up in producing that output. GDP shows how disposable income is either consumed or saved. It tallies expenditure on private Consumption, Investment, Government, and net export (Export minus import) GDP records sum of all incomes in an economy. It shows how primary (wages & salary) & secondary (taxes minus subsidies) flows

4 Importance of GDP: Functional purpose/use: p widely used to measure economic activity in a period to see how the economy is doing. Ui Using GDP can assist it advisors di to policy makers to make sound decisions on how to address issues facing the country in order to improve its economy. GDP can be used by students, professors, economists, and advisors to policy makers as an outcome measure of economic performance. Changes in GDP can be used to assess the large scale effectiveness of economic policies and practices.

5 Three Approaches in GDP Calculation: (1) Expenditure Approach This method simply adds all of the final expenditure on goods and services by individual consumers, business firms, government and foreigners. GDP = C + I + G + (X M) since GDP measures domestic expenditure, the value of imports must be subtracted from all expenditure. (2) Production Approach This method measures domestic production as the total of value added by all productive activities. This method aggregates valued added into sectors. GDP = VA AGRICULTURE + VA INUSTRY + VA SERVICES

6 Three Approaches in GDP Cl Calculation: lti continued. (3)Income Approach This method calculates GDP by adding up all of the incomes in the economy. GDP = Compensation of Employees + Operating Surplus + Non marketed Production + Depreciation + Indirect Taxes Subsidies

7 Which approach does the FSM use? FSM has been using the Income Approach since it is easier to access to most of the data or extrapolate available data to get the GDP estimates. In fact, the approach used should be called a modified income approach since it utilizes a number of simplifying assumptions to be able to make annual estimates based on data available on a consistent basis

8 How do you read GDP tables? Can be read as Current GDP (or also known as Nominal GDP) at basic or market price. Basic price does not take into account tax less subsidies but market price does. Can be read as Constant GDP (or Real GDP). The Constant GDP is adjusted for price changes. Can be read as Current GDP per capita or Constant GDP per capita Current GDP growth rate or Constant GDP growth rate. GDP can be presented by industry (eg fisheries, agri) or by GDP can be presented by industry (eg fisheries, agri) or by sector (e.g. Private sector, public sector, NGOs)

9 Constant GDP table FSM and State Constant GDP (US$ mn): FY07 to FY09 Gross Domestic Product (GDP) FY07 FY08 FY09 Governments FSM Chuuk Kosrae Pohnpei Yap Note: GDP at market price Source: FY09 FSM Economic Report, Statistical Tables

10 GDP per capita table FSM and State Constant GDP (US$) per capita: FY07 to FY09 Governments FY07 FY08 FY09 FSM 2,298 2,256 $2,278 Chuuk 1,452 1,377 $1,403 Kosrae 2,297 2,248 $2,396 Pohnpei 3,110 3,090 $3,036 Yap 3,517 3,512 $3,612 Note: GDP at market price Source: FY09 FSM Economic Report, Statistical Tables

11 GDP growth rate table FSM and State Constant GDP Growth rate %): FY07 to FY09 GDP growth rate FY07 FY08 FY09 Governments FSM 1.9% 2.3% 0.4% Chuuk 8.2% 82% 6.2% 62% 09% 0.9% Kosrae 0.7% 3.5% 5.1% Pohnpei 24% 2.4% 0.5% 1.6% Yap 1.4% 0.2% 3.1% Note: GDPat market price Note: GDP at market price Source: FY09 FSM Economic Report, Statistical Tables

12 Some general concepts to know GDP per capita = GDP divided by population Constant (Real) GDP = GDP divided by Deflation Index (FSM uses Consumer Price Index (CPI), Producers Price Index (PPI), etc) Current (Nominal) GDP = GDP not taking into changes in price. Although GDP is widely used and follow int l standards, it does not take into account informal domestic products & services or black market. It does not consider how the wealth lh of a nation is distributedib d

13 Mi Main dt data sources for GDP est. Soc Sec Admin or Foreign embassies eswho do not have to pay FSM SS provided they have proof of SS payment in their country. Public Ent(SOEs) at both National and state levels Public Auditor Offices at both National and State levelsl Financial Institutions (commercial banks, credit unions, development banks) State and National Finance Office & Customs and Tax Admin Individuals through Surveys such as HIES or Census

14 THANK YOU VERY MUCH

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