GDP according to the production approach

The compilation process of GDP by production approach can be summarized in two steps. In the first step gross value added at basic prices of all branches is estimated as the difference between output at basic prices and intermediate consumption at purchases' prices less financial services indirectly measured FISIM. In the second step taxes on products are added and subsidies on products are subtracted from the sum of gross value added of all branches to obtain GDP at market prices.

Real growth of GDP is among the most important indicators of the system of national accounts. Compilation of GDP at constant prices is important to determine the annual real growth rate of GDP. GDP at constant prices is measured as sum of gross value added of all branches at constant prices plus taxes and minus subsidies on products at constant prices.

The table below shows main categories of GDP by the production approach.

GDP according to the expenditure approach

GDP by the expenditure approach implies relationships betweeen four economic sectors, Households, Businesses, Government and Rest of the World and is measured as the sum of expenditure on goods and services of all those sectors. GDP by expenditure method is based on the below equation:

GDP = C + I + G + NX

After the estimation of GDP at current prices by expenditure approach, it is done the deflation with price indicies in order to obtained GDP at constant prices.

Methodology

GDP calculations are based methodologically on the basic concepts of the European System of Accounts (ESA 2010) and the System of National Accounts (SNA 2008) of the United Nations Organization (UN). Both these methodologies are the latest updates to the ESA 1995 and SNA 1993

The European System of National and Regional Accounts (ESA 2010) is the newest internationally compatible EU accounting framework for a systematic and detailed description of an economy. The ESA 2010 was implemented by EU Member States in September 2014. More on this topic: http://ec.europa.eu/eurostat/web/products-manuals-and-guidelines/-/KS-02-13-269

The ESA 2010 differs in scope as well as in concepts from its predecessor ESA 95 reflecting developments in measuring modern economies, advances in methodological research and the needs of users. The structure of the ESA 2010 is consistent with the worldwide guidelines on national accounting set out in the System of National Accounts 2008 (2008 SNA). A description on the changes and effects of each changes is set out on the Manual of changes between ESA 95 and ESA 2010. This manual is very important and necessary to compile data in a reliable and comparable way within EU countries. More on this topic:   http://ec.europa.eu/eurostat/en/web/products-manuals-and-guidelines/-/KS-GQ-14-002

In this context, Albania as a candidate country for EU accession has begun the implementation of ESA 2010 during year 2014. The National Accounts have implemented some of the new methodological changes as:

-        Extension of the estimates for the financial sector, including all financial institutions for which data are available based on the new classification of the ESA 2010 and SNA 2008.

-        Application of a new method for calculating financial intermediation services indirectly measured (FISIM).

-        Evaluation of the production of the Bank of Albania score based on the distinction to be made between the production of market and non-market according to SNA 2008 / ESA 2010.

-        Review of the definition for the production of insurance companies that offer non-life insurance.

-        Methodological applications under the ESA in 2010 for the evaluation of expenditure indicators (treatment of final consumption of households according to COICOP 2 digit, treatment Gross fixed capital formation by type of assets, etc.).

Classifications

Classifications are essential for the production, compilation and dissemination of statistics. The statistical classification are updated continuously to better reflect the economic, technological and structural changes in the economy and to enable comparison and data connection at European level and in general, in the world as part of an integrated system.

Classifications used in National Accounts are:

-     Nomenclatures of economic activities Rev. 2 (NACE Rev. 2). The previous classification NACE Rev. 1.1 has been updated with new classification NACE Rev. 2 which introduces new concepts and higher levels of classification and new details that reflect different forms of production and emerging industries;

-     Nomenclature of products (CP);

-     Classification of Individual Consumption by use (COICOP);

-     The classification of government expenditure by function (COIFOG).

Data sources

For the estimation of GDP is used the information provided by various statistical and administrative sources. Data could be a result of surveys conducted from INSTAT or administrative data from different institutions as Ministries, General Directorate of Taxes and Customs, National Registration Center, Bank of Albania, Financial Supervisory Authority, National Agency of Natural Resources, etc. By comparing these sources with each other, it is obtained a clear picture of the ecomony which is comprehensive, consistent, coherent and fully intergrated.

The statistical sources include data gathered from various records and surveys on entities or households, among which we can mention:

-          Bussines Register;

-          Population and Housing Census;

-          Structural Bussines Survey;

-          Retail Trade Survey;

-          Household Budget Survey;

-          Labour Force Survey;

-          Living Standart Measurement Survey;

-          Price Statistics Survey;

-          Etc.

Administrative sources include administrative data collected by other institutions for various purposes, among which may be mentioned:

-          Annual financial statements;

-          Value added tax (VAT);

-          Monetary financial statistics;

-          Balance of Payments;

-          Government fiscal statistics;

-          Foreign trade statistics;

-          Data on electricity and energy products;

-          Etc.

Stages of publication and revision policies

Estimates of annual GDP pass through two stages of calculations and publications.

• The first stage includes semi-final estimates of the annual accounts of the GDP for the year “t” which are done at the period t+15 months.
• The second stage includes the final estimates of GDP for the year (t). In this stage, when the data set of the year (t+1) is received, the data of the year (t) is reviewed once again in order to incorporate any changes made to the year (t) and to ensure the consistency of the two consecutive years. During this stage is performed the final balancing at product level between the two methods of GDP.

The published data are revised based on revision policies of the national accounts. The annual estimates of the GDP and its components are subject of two types of revisions: routine and major revisions.

Routine revisions:

Annual routine revisions are as a result of updates of annual available data sources with the latest data of a given year 't". Estimation of GDP of year "t" pass through three stages of compilation until to final estimations. The first annual preliminary estimates on annual basis of the current year are available 11 months after the end of the reporting year (at the beginning of December of year t+1). Annual preliminary estimations are based on preliminary and data of annual surveys and other administrative sources. Preliminary estimates of annual GVA are revised after six months based on more comprehensive and updated informations. At the same time there are also revised the estimates of the previous year (t-1) in order to transform the estimates from semi-final to final.

Major revisions:

Major revisions are linked with international methodology revisions (introduced by ESA 2010), changes in definitions, methods and classifications, as well as incorporation of a widening scope of various data sources

Definitions

Output

Production is an activity carried out under the control, responsibility and management of an institutional unit that uses inputs of labour, capital and goods and services to produce outputs of goods and services The total of products created during the accounting period is considered as output.There are three types of output such as: Market output; output produced for own final use; non-market output.

Intermediate consumption

Intermediate consumption consists of goods and services consumed as inputs by a process of production, excluding fixed assets whose consumption is recorded as consumption of fixed capital. The goods and services are either transformed or used up by the production services.

Taxes on products and imports

Taxes on products are paid taxation per unit of some goods and services like the Added Value Tax, excise and customs' tax on imports.

Subsidies on products andimports

Subsidies on products are non - reverse payment made by public administration units to the companies in the form of a certain amount of money per unit of goods or services. Subsidies in imports consist in subsidies of goods or services payable when the product surpasses the border of economic territory or if the services were made to resident institutional units.

FISIM

Some financial intermediaries provide services for which they don`t explicitly charge their customers. Examples of these services are loans and deposits which the financial institutions offer interest rates for certain periods and in different currencies. The value of these financial intermediary services is indirectly measured and is abbreviated FISIM. FISIM is valued on the basis of the difference between the actual rates of interest on deposits and loans (respectively) of FIs and a reference rate of interest, multiplied by the respective stocks of deposits and loans.

Basic Price

The sum, which the producer receives from the buyer per unit of product or service produced, excluding taxation on product and subsidiaries on it. (The basic price excludes transport expenses).

Market Price

The basic price after adding taxes less subsidies on products.

Current Price

Prices of reference period.  It represents the price paid for goods and services in the production or consumption time.

Constant Price

Constant prices are adjusted for prices changes relative to a base year. They are a way of measuring the real change in output.

Real Growth

The indicator used to compare the real growth rate at which a Gross Domestic product (GDP) and its compontents changes/grows from one year to another.

Final consumption

Final consumption is one of the basic components of GDP by expenditure method. It consists in goods and services used by separate families or communities and is calculated as the sum of final consumption of household, final consumption of general government and final consumption of non - profit institutions serving the households.

Final consumption of households

Final consumption of households' contains all goods and services directly used to fulfil the individual needs of resident families.

Final consumption of General government and NPISHs

Is the value of non - commercial services ensured by General government and non - profit institutions to the profit of communities or groups of families. It is calculated as the difference between the general government production and NPISH s and their market production value.

Net Export

Net export is the difference between export of goods and services (f.o.b) and import of goods and services (f.o.b).

Gross fixed capital formation

GFCF consist of resident producers acquistions less disposales, of fixed assets during a given period plas  certain additions to the value of non-produced assets realised by productive activity of producer or institucional units Fixed assets are produced assets used in production for more than one year.

Part A - GNI compilation – Albania

PART B - Price and volume measures - Albania

Implementimi i ESA 2010 dhe NVE Rev.2 në Llogaritë Kombëtare Vjetore

Quarterly GDP is estimated using the production approach and are estimated the main components of quarterly GDP by expenditure approach. GDP it is published at 90 days after the end of reference quarter.

The current and constant measures of Quarterly GDP are consistent with the annual national accounts and are based on the same concepts and principles. The main data sources that are used to estimate GDP are in general administrative data and various infra-annual data collected by INSTAT’s surveys. The series are subject to revisions in the future as additional or improved information becomes available.

The objective of the quarterly data in time series format is to give dynamic information about the economy. The publication includes estimates of quarterly GDP at constant prices (changes in volume of the quarterly GDP) added Net Taxes (taxes and subsidies on products). The volume measures are expressed at average prices of the previous year and chain-linked with the reference year, (2010=100). The estimates of quarterly GDP are compiled in both original and seasonally adjusted formats. The method used to estimate quarterly GDP is considered an indirect method.

Is considered as an indirect method because the available data sources are used to estimate quarterly value added based on the selected quarterly indicators by application of mathematical methods and statistical techniques. Specifically, the applied indirect method is based on the assumption that the proportion between the value added and output is constant within the period of estimation. In some specific branches like Electricity, Public Administration, Education, Health and Financial Activities, is used the direct method which estimates the output and intermediate consumption separately, with subsequent calculation of value added as a difference.

Sequence of compilation

In the indirect method the chronological order may change, but the most used is as follows:

1. Constructing the quarterly indicators at current and constant prices from different sources for the appropriate recent periods;
2. Development of time series for quarterly data at current and constant prices in order to ensure data comparability and consistency over time;
3. Benchmarking the non-seasonally adjusted series to the relevant annual series;
4. Eliminating the seasonality from the aggregated quarterly time series.

It is worth mentioning that the sum of seasonally adjusted quarters is not necessarily equal to the annual GDP for any particular year.  Under normal circumstances, there will be enough variation in seasonality and/or trading day effects to explain a gap between the two.

Volume measures

Quarterly National Accounts, to ensure better consistency with the Annual estimates, as well as complying with ESA 2010, the volume measure of quarterly time series are expressed  in average prices of the previous year and chain-linked reference year (2010=100).

General procedure of volume measures calculation consists of two steps: First figures at current prices are converted to previous year’s average prices using appropriate price indices. Figures at previous year’s prices are then chain-linked, with the reference year (2010=100), in order to obtain comparable time series of volume measures over time. This approach was introduced for the first time in quarterly accounts during the publication of the first quarter 2014. In the past, different approach was applied, where current price data were converted to constant prices of the fixed base year (the base year was 2005).

Chain-linking of quarterly figures is performed using the Annual Overlap technique, i.e. figures at previous year’s prices are scaled down to the average price level of the chosen reference year using annual deflators. This technique is used in the majority of member states of the European Union. Chain linking means constructing long run volume measures by cumulating movements in short term indices with different base periods. The chain-linking of quarterly GDP data with fixed reference period (2010=100) allow different periods to be compared in a consistent manner and provide measures of long-run changes. However, the users should be aware of the phenomena of (non- additivity problem) of chained data.

For example if quarterly time series of GDP at current and constant prices with average prices of the previous year are additive, where total GDP is the sum of the components, for chain linking series, with fixed reference period (2010=100) the total GDP will be non-additive.

Following international methodology, the real growth rate is estimated using quarterly chain-linked series, with the reference year 2010 (2010 = 100).

Benchmarking

The aim of benchmarking is to ensure the consistency between Quarterly and Annual National Accounts. It should be applied to both current and constant prices, where quarterly values are expressed at the same base year as the annual data. It has to be underlined that the benchmarking alters the original figures, and consequently the volume growth of the aggregates, influencing in this way the chain-linked adjusted results.

Benchmarking of quarterly GVA figures, was carried out by using the XLPBM Excel programme. The XLPBM Excel programme has been developed by the IMF and provides a set of mathematical and statistical techniques which are used for temporal disaggregation of data series. During the process of adjustment, the discrepancy between estimated quarterly data and final annual data is minimized. The result is the achievement of consistency of quarterly and annual data, that is, the sum of quarterly data is equal to annual data in every year.

Seasonal adjustment

One of the major characteristics and issues of quarterly national accounts is seasonality. There are two methods for eliminating the seasonal effect from quarterly series.

Indirect method:

The level at which series are seasonally adjusted is important, since it has the potential to affect the quality of that seasonally adjusted series. The individual component series of the main economic variables can be seasonally adjusted and then summed to derive totals. This is called an indirect seasonal adjustment. The indirect approach has the advantage of retaining additive, but this applies only to the current price series. Although the indirect approach conceptually also provides additively for volume series.

Direct method:

Alternatively, the main economic variables can be seasonally adjusted at the total level, independently from the seasonal adjustment of their components. The adjustment of the total of an aggregate series is called a direct seasonal adjustment.

The direct approach often gives better results if the component series show similar seasonal patterns. At the most detailed level, the irregular factor may be large compared with the seasonal factor and therefore makes it difficult to perform proper seasonal adjustment.

In a small country such as Albania, irregular events can have strong impact on particular data. However, if the component series show the same seasonal pattern, aggregation often reduces the impact of the irregular factors in the component series. This is particularly relevant for Albania, where many economic series are affected by same seasonal fluctuations in the primary industries. INSTAT applied direct method for seasonal adjustment of quarterly time series.

The program used for seasonal adjustment of time series is JDemetra +, method TRAMO / SEATS, this program was developed by EUROSTAT.

Revisions policy

One of the most important moments of the quarterly series is revisions policies. These revisions are related with quarterly and annual data changes. Revisions to the previously published series may be made each quarter. The frequency and cause of these revisions are as follows:

Quarterly revisions:

As additional data become available for the last quarter, they have their impact on the previous quarters because: data reported for the last quarters are supported by additional source data or improvements/corrections to data for previous nearest quarters were performed. It is necessary to mention that most of the data used for quarterly estimations are administrative data.

Including the last quarter data in the series and subsequent application of the seasonal adjustment will result in some changes to the previous quarters.

Annual revisions:

Quarterly data are benchmarked to the annual one, and revisions to annual data will influence the quarterly series. Revisions to annual data are subject to arrival of new annual data sources or improvements of the existing ones. One year has three steps of estimation; flesh, semi final and final. Changes that happen during these steps have their direct effect on the quarterly series. The flash estimations of the current year are available 11 months after the end of the reported year, semi final are available with a time discordance of 17 months and the final version - within 29 months. Revisions to quarterly series are linked to the production cycle of annual estimates.

Methodological revisions:

Revisions of quarterly series due to changes in methodology are to the extent possible coinciding with the annual cycle of revisions outlined above.

In addition, each of the above causes of revisions, and/or the incorporation of new series in the actual quarterly series, has the potential to alter seasonal factors and therefore may lead to a revision in the seasonally adjusted series.

PART C-QNA compilation, Albania