GDP and GVA growth: who contributed how much?

The category ‘public administration, defence and other services’, mainly government spending, contributed the second largest chunk of growth, at 23.8% of total GVA growth


In short, Q2 data shows that private sector activity in the economy wasn’t very robust in the first place and demonetisation will further weaken it. Photo: Bloomberg
In short, Q2 data shows that private sector activity in the economy wasn’t very robust in the first place and demonetisation will further weaken it. Photo: Bloomberg

Dramatic events have overtaken the second quarter (Q2) GDP numbers, making them less important. Demonetisation will affect growth adversely for the rest of this fiscal year, at the very least. The election of Donald Trump as US president has injected another source of uncertainty about the external trade environment, about the currency and on capital inflows, all of which will have an impact on future growth.

So what can we glean from the Q2 GDP figures? First, growth in gross value added (GVA) has decelerated, from 7.3% in Q1 to 7.1% in Q2. The accompanying Chart 1 has the sources of this growth. The “financial, insurance, real estate and professional services” sector accounted for 29.7% of the growth in GVA over the year-ago period. What’s interesting is that the category “public administration, defence and other services”, which is mainly government spending, contributed the second largest chunk of growth, at 23.8% of total GVA growth.

Indeed, if we leave out “public administration, defence and other services” from the GVA computation, then growth in the rest of the economy was a far more tepid 6.2%. The GDP numbers on the expenditure side bear out the large contribution of government spending. Government final consumption expenditure was up 13%, at constant prices. Indeed, the contribution of government final consumption expenditure to total GDP growth was as high as 25.3%.

Chart 1 details how much the other sectors contributed to GVA growth.

Chart 2 shows which sectors from the expenditure side contributed to GDP growth in Q2. Consumption, including both government and private consumption, together contributed 82.2% to GDP growth. Note the large negative contribution of capital formation.

In short, Q2 data shows that private sector activity in the economy wasn’t very robust in the first place and demonetisation will further weaken it.

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