The Office for National Statistics published the first official estimates of short-term GDP for Wales and English regions on 5th September. In this blog we explain what the data show and what it means for other data about Wales.
Gross Domestic Product (GDP) for Wales
Gross Domestic Product (GDP) measures the size of a country’s economy – the total value of goods and services produced – and is a key measure of economic performance. Estimates of GDP for the UK are produced by the Office for National Statistics (ONS), based on a vast amount of data collected from businesses, VAT records and other sources. Until now, an official estimate of GDP has not been available for Wales. Breaking down the data to a country or regional level is not straight-forward, because businesses operate across country and regional borders and it can be difficult to identify ‘where’ the value of a product or service was created.
Using funding provided to them to improve regional data following the Bean Review of economic statistics, ONS has recently developed a new methodology to estimate GDP for Wales and the nine regions of England, and it published the first estimates of country and regional GDP (R-GDP) on 5th September. For the time being at least, the statistics have been categorised as ‘experimental’, because the method is new and may evolve in response to testing and feedback.
Differences between GDP and other measures
We consider it important to monitor the Welsh economy using a basket of indicators covering income, economic output, poverty, wealth and the labour market. This allows the performance of the Welsh economy to be considered in the round, and is consistent with the view of international experts. We’ll add regional GDP to this basket of indicators very soon.
Until now our best, most timely output measures for the Welsh economy have been the Short Term Output Indicators (STOI), produced by ONS on our behalf. These show short term movements in the output of companies in the production, construction and market services sectors, accounting for about 75 per cent of the Welsh economy. They are relatively timely indicators – they’re available about three months after the reference period – but they don’t cover the whole economy and methodologically are not comparable with official measures of GDP.
Conceptually, STOI and R-GDP are similar – they estimate changes in the output of businesses over a period of time. But R-GDP has a more comprehensive coverage of the economy and will be comparable with the other countries and regions of the UK.
Methodologically, the main difference is that R-GDP makes greater use of administrative data. It is based almost exclusively on VAT returns – while STOI is mainly survey-based. The VAT data take a bit longer to come through, meaning that the new GDP estimate will usually be published six months after the end of the reference period. ONS believe that VAT data provide a more comprehensive and reliable indicator of output at a regional level.
In summary, R-GDP is less timely than STOI but more comprehensive, and comparable with other regions.
The other key indicator of economic output is Gross Value Added (GVA). GVA is conceptually equivalent to GDP but while GDP measures the total (final) value of goods and services, GVA measures the value added in the production process itself. Regional GVA statistics are produced by the ONS. They enable direct comparisons with the other countries and regions of the UK and are available down to local authority level. However, regional GVA estimates don’t show short-term changes (they cover whole calendar years at a time) and they come with a lag of about a year following the reference period.
What do the new statistics say?
The data suggest that GDP in Wales grew by 0.3 per cent in Quarter 4 (October to December) 2018, and by 2.3 per cent over the year. For the UK as a whole there was an increase of 0.2 per cent in Quarter 4 and 1.5 per cent for the year. Of the twelve countries and regions of the UK Wales had the second largest increase in the latest quarter.
Estimates for the production sector show output was flat in Quarter 4 and fell by 0.8 per cent in 2018. These are more positive than the equivalent estimates from STOI (minus 1.0 per cent in Quarter 4 and minus 1.7 per for the year). For construction, GDP grew by 3.3 per cent in Quarter 4 and by 17.0 per cent over the year, which is fairly close to the STOI estimates of 4.4 per cent and 17.8 per cent. Like other economic indicators, however, the STOI and GDP data can be volatile on a quarterly basis, making interpreting short term changes difficult. This is particularly the case at the level of individual industries. Currently, we can’t compare estimates for services because the GDP and STOI sectors are not equivalent. We’ll look to produce an equivalent market services GDP estimate to compare with the STOI series in due course.
What happens next?
After this first release, R-GDP will be published on a quarterly basis with a 6 month lag from the reference period. ONS will carry out a consultation to assess the quality and suitability of the new statistics, and in parallel we’ll also soon start gathering views from Welsh economic statistics users. We will be interested to know how the data might be used, and for what purpose.
We’d like to assess the extent to which the new series meets needs here in Wales, and whether there is still a need to continue with STOI. To help inform this, we’ll continue to publish STOI for the next few quarters so we can get a good understanding of the differences and similarities between the two series, and their relative strengths and limitations. To help users understand how they might use these data it will also be important to understand the potential scale of revisions in the quarterly GDP figures, how they compare to revisions to STOI and how they might differ across different sectors of the economy.
Over the longer term, ONS intends to work towards accreditation as National Statistics to replace the current ‘experimental’ designation. National Statistics status means that official statistics meet the highest standards of trustworthiness, quality and public value.
For now, if you’d like to get in touch to let us know what you think of STOI or the new statistics, please contact email@example.com
Head of economy, skills and natural resources statistics