The measure of GDP per capita in purchasing power standards

A statistical indicator tricky to interpret

Francois Magnien, INSEE, France

OECD National Accounts Meeting

October 2002. Paris

1. PPP calculations are not coherent with national accounts

• 1.1 A fundamental inconsistency in the measurement of real growth…

• 1.2 … stemming from differing estimates of price levels in national accounts and PPP calculations

Table 1: real GDP per capita growth relative to the European average 1992-1999

(% over the seven-year period) Population National accounts ( 1995 prices) Source Eurostat (in PPP) Difference

Population GDP growth GDP growth per capita

(1) GDP growth GDP growth per capita (2)

(2) - (1)

Belgium -0.4 -0.4 -0.1 -3.5 -3.2 -3.1

Denmark 0.8 4.1 3.3 13.1 12.2 8.6

Germany -0.3 -5.1 -4.9 -2.7 -2.4 2.6

Greece -0.1 0.9 1.0 8.8 9.0 7.9

Spain -0.5 4.7 5.2 3.7 4.2 -0.9

France 0.5 -2.1 -2.6 -8.0 -8.4 -6.0

Ireland 3.3 49.1 44.3 44.4 39.7 -3.2

Italy -0.7 -3.4 -2.7 -2.4 -1.6 1.1

Luxembourg 8.7 NA NA 23.9 14.0 NA

Netherlands 2.0 7.1 5.1 12.0 9.8 4.5

Austria 0.1 0.3 0.1 2.4 2.3 2.2

Portugal -0.8 4.4 5.3 10.0 10.9 5.3

Finland 0.3 12.2 11.9 16.2 15.8 3.5

Sweden 0.0 NA NA 0.5 0.4 NA

United Kingdom 0.3 7.0 6.7 3.3 3.0 -3.5

European Union 0.0 0.0 0.0 0.0 0.0 0.0

Source : Eurostat

Table 2: National price trends relative to the European average between 1992 and 1999 :

comparison of Eurostat and national accounts measures (in %)

National accounts

PPP Estimate Eurostat

Difference

Belgium 1.2 4.5 -3.1

Denmark 3.6 -4.6 8.6

Germany 0.2 -2.4 2.6

Greece 14.0 5.7 7.9

Spain NA -11.7 NA

France -0.4 6.0 -6.0

Ireland 8.3 11.9 -3.2

Italy -9.4 -10.3 1.1

Luxembourg NA NA NA

Netherlands 1.4 -3.0 4.5

Austria 0.3 -1.8 2.2

Portugal 3.2 -2.0 5.3

Finland -3.8 -7.0 3.5

Sweden NA NA NA

United Kingdom 16.1 20.2 -3.5

European Union 0.0 0.0 0.0

Source : Eurostat

2. Measuring construction prices: an example that illustrates

the difficulties that the ICP must overcome • 2.1 Comparison of construction prices: a complex

method…

• 2.2 … which leaves too large a margin of uncertainty surrounding the price level

• 2.3 The prices supplied by national experts are often amazing

• 2.4 Insufficiently representative sampling

3. The revision of PPPs: an opportunity to restore

credibility to the ICP which should not be missed • 3.1 Two objectives -- but one priority: to correct price levels

• 3.2 It is essential to reconcile PPP-based figures with national account figures

• 3.3 “Cross-sectional” comparison of basic price data

• 3.4 Correcting prices -- a politically sensitive exercise