Gross domestic product (GDP) - Methodology

Gross domestic product (GDP) is a monetary expression of the total value of goods and services newly created in a given period in a certain territory; it is used to determine the performance of the economy. It can be defined or calculated in three ways: (1) the production approach, (2) the expenditure approach, and (3) the income approach.

Within the production method, GDP is calculated as the sum of the gross value added of individual institutional sectors or activities and net taxes on products (which are not allocated by sectors and activities). It is also a balancing item of the production account for the national economy as a whole, where output is recorded on the resources side and intermediate consumption on the uses side. Gross value added is the difference between output and intermediate consumption. Given that output is valued in basic prices and use in purchase prices, the resources side of the national economy is supplemented by taxes less subsidies on products.

GDP = Output minus Intermediate consumption plus Taxes on products minus Subsidies on products

Within the expenditure method, GDP is calculated as the sum of the final use of products and services by resident units (real final consumption and gross capital formation) and the balance of exports and imports of products and services. Actual final consumption is derived through social transfers in kind from final consumption expenditures by households, the government, and non-profit institutions serving households. Gross capital formation is divided into the gross fixed capital formation, changes in inventories and the net acquisition of valuables.

GDP = Final Consumption Expenditure plus Gross Capital Formation plus Export of Goods and Services minus Import of Goods and Services

Within the income method, GDP is calculated as the sum of primary incomes for the national economy as a whole: compensation of employees, taxes on production and import less subsidies and gross operating surplus and mixed income (or net operating surplus and mixed income and consumption of fixed capital)

GDP = Compensation of Employees plus Taxes on Production and Imports minus Subsidies plus Net Operating Surplus plus Net Mixed Income plus Consumption of Fixed Capital