How to Calculate GDP Growth RateGDP) is itself a useful number calculated to reflect the value of a country's economy it is far more insightful to assess GDP over time and see how a country's economy is growing (or contracting) over time. A relatively high GDP is great, but if it is declining from quarter to quarter than that is a major concern for any country. This is where calculating the GDP growth rate comes in, something that is typically done on a quarterly and annual basis by many global financial organizations.
- GDP = Consumption + Investment + Government Spending + Exports – Imports
Annual GDP Growth RateCalculating the annual GDP growth rate is fairly straight forward. Calculating the 2014 GDP annual growth rate would be done as follows:
- 2014 GDP Growth Rate = (2014 GDP – 2013 GDP) / 2013 GDP
Quarterly GDP Growth RateCalculating a quarterly GDP growth rate is also straight forward. The quarterly GDP growth rate would be calculated as follows:
- 2014 Q2 GDP Growth Rate = (2014 Q2 GDP – 2014 Q1 GDP) / 2014 Q1 GDP
Quarterly GDP growth rates are looked at very closely by investors and analysts when it comes to assessing the economic outlook for a country. If the GDP growth rate in the U.S. comes in different than analysts expected it is not uncommon to see a swing in the stock markets follow, indicating the significance GDP growth has on the economy.
The only issue with GDP calculations is that based on the accumulated details and time delay in getting that information it is not uncommon to wait several months for hard figures to be released. The complexity and work required to accumulate information also means that calculating GDP personally is nearly impossible, so you will have to rely on an organization that publishes the data.
When calculating any GDP growth rates it is important that you use the same source for all of your information, both in terms of yearly data for a single country and across countries. This is due to the fact that different organizations, like the International Monetary Fund and World Bank, will provide different GDP figures. This is largely due to slight differences in how they accumulate data and calculate factors like consumption or investment for a country.
By Jeffrey Glen