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SPOTLIGHT ON NATIONAL ACCOUNTS: MEASURING STATE ECONOMIC ACTIVITY
Comparing State Final Demand and Gross State Product (E)
As indicated above, the only key economic aggregate available by state on a quarterly basis is SFD. It is a key aggregate within the derivation of GSP using the expenditure approach (GSP(E)). GSP, the ideal measure of economic activity, is not available on a quarterly basis. Consequently it is important to understand the conceptual difference between SFD and GSP(E) before using SFD as a measure of economic growth.
SFD is the final use of goods and services within a given period by households, government and businesses. That is, the sum of Household Final Consumption Expenditure, Government Final Consumption Expenditure and Gross Fixed Capital Formation. It is conceptually equivalent to the Australia level aggregate Domestic Final Demand.
GSP(E) is the sum of the expenditures undertaken within the economy within a given period and is equivalent to the total market value of goods and services produced in a state or territory after deducting the cost of the goods and services used up in the process of production. It is therefore SFD plus exports minus imports of goods and services (either international or interstate) plus changes in inventories. Conceptually, it is equivalent to the national aggregate of GDP. Like GDP, there are three ways of measuring GSP:
The major difference between SFD and GSP(E) is the estimate of trade data, both international and interstate. Only international trade in goods is available on a quarterly basis. International trade in services is available annually. There is a lack of data to estimate interstate trade data for all states and territories on an annual basis, however it is modelled and is included within the Balancing Item. More information on the methodology for estimating interstate trade is included in Australian National Accounts: State Accounts (cat. no. 5220.0) and the Australian System of National Accounts: Concepts, Sources and Methods (cat. no. 5216.0). Therefore an estimate of GSP(E) can be derived on an annual basis only.
The impact of trade will vary between states and territories and over time. Therefore it is not possible to obtain a direct correlation between SFD and GSP(E) for any state and as such SFD is not a proxy for GSP(E).
Comparison of differences in series
The differences between growth rates in SFD and GSP(E) can be quite dramatic and basing inferences on the economic activity within a particular state or territory solely on SFD can be potentially misleading. The following graphs highlight some of the differences.
SFD for New South Wales in 2000-01 showed negative growth of -0.7% , while GSP(E) showed positive growth of 2.5%. The difference between SFD and GSP(E) in 2000-01 was due to a sharp increase in International Trade - Export of Services which jumped from $16,251 million in 1999-00 to $19,734 million in 2000-01 and Interstate Trade - Export of Services which increased from $27,981 million in 1999-00 to $36,209 million in 2000-01. The effect of trade estimates have a significant effect on the overall GSP(E) movements.
The trade effects on smaller states and territories can be quite dramatic as illustrated by the South Australian series. There is usually a heavy reliance on interstate trade with these states and territories and consequently the movements in SFD can vary significantly when compared with GSP(E).
SFD is a component of GSP(E): GSP(E) = SFD + Net Trade (exports-imports) + Changes in Inventories. As SFD excludes international and interstate trade as well as changes in inventories it is not a measure of production within the state or territory, and is equivalent of the national aggregate Domestic Final Demand.
GSP is a more complete indicator of economic activity for the states and territories. It presents both a production and expenditure view of the states economy and is equivalent to the national aggregate Gross Domestic Product. However SFD is available on a quarterly basis while GSP is only available annually. This Spotlight also shows that the differences between growth rates in SFD and GSP(E) can be quite dramatic and basing inferences on the economic activity within a particular state or territory solely on SFD can be potentially misleading.
For further information about these and related statistics, contact the National Information and Referral Service on 1300 135 070 or David Blair on Canberra (02) 6252 6516.
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