Background Notes

Introduction

This release presents the results of the calculation of Gross Domestic Product (GDP) by the CSO using the Output Method for the year 2011.

The Output Method (also known as the Production Approach) is an alternative approach to the estimation of GDP and over time these new estimates will be integrated into the National Income and Expenditure (NIE) publications. At present, the NIE includes estimates of GDP using the Income and Expenditure Methods. All estimates of GDP are now compiled in line with the European System of Accounts 2010 (ESA2010) standards, which came into effect from mid-2014. This calculation of GDP using the Output Method is transitional work to enable the CSO to meet future reporting requirements.

Methodology

As the Output Method measures GDP as the difference between the value of output less the value of goods and services used in producing these outputs, the basic elements are therefore output, intermediate consumption and value added (output less intermediate consumption).

Output includes production of goods and services supplied or intended for supply to units other than their producers, including those used up in the production process. Also included are own-account production of goods retained by their producers for their own final consumption or gross fixed capital formation and own-account production of housing services produced by owner-occupiers.

Excluded from the production boundary are domestic and personal services produced and consumed within the same household.

CSO data sources

The underlying definitions used are those of the ESA2010. The methodology used is described in the ESA2010 manual.

The following published sources are used in the compilation of the Output and Value Added tables.  

 Annual Services Inquiry

 Balance of International Payments

 Census of Building and Construction

 Census of Industrial Production

 Household Budget Survey

 National Income and Expenditure

 Output, Input and Income in Agriculture

 Quarterly National Household Survey

Other data sources

Considerable use is made of published reports of government departments, semi-state bodies and financial institutions. Company accounts and administrative records are also used.

Part of the compilation process is an examination of the consistency between this data and the Income Method data, which is based mainly on administrative sources.

Classifications

The activity classification used is NACE Rev. 2. For National Accounts purposes, the economy is classified by 64 activities using this Eurostat ESA2010 A64 coding scheme. Some activities have to be combined due to confidentiality. The corresponding NACE Rev. 2 division codes are also shown.

Definitions

Output at basic prices covers the value of all goods produced for sale, including unsold goods, and all receipts for services rendered. Output furthermore covers the market equivalent of goods and services produced for own use, such as own account capital formation, services of owner-occupied dwellings and agricultural products produced by farmers for own consumption. The output of such goods is estimated by valuing the quantities produced against the price that the producer would have received if these goods had been sold.

Output is valued at basic prices, defined as the price received by the producer excluding trade and transport margins and the balance of taxes and subsidies on products. This is the price the producer is ultimately left with.

 Some special cases:

• Distributive trade, i.e. retail / wholesale trade in goods where no physical transformation occurs. The value of these services is the difference between the sales value and the purchase value of traded goods.
• Real estate activities not only include services of non-residential buildings and rented dwellings, but also of owner-occupied dwellings. The latter are valued on the basis of rents of comparable rented dwellings.
• Banking mainly deals with financial intermediation, i.e. the acquisition, transformation and issuing of financial assets. The compensation for these services is implicitly included in the interest paid to and received from banks. The value of these imputed bank services is calculated as the margin received by banks on loans and paid by banks on deposits.
• Insurance and pension funding mainly transforms individual risk into collective risk. The value of these services is set as the difference between contributions and benefits. In the case of pension funds and life insurance companies, corrections are made for changes in actuarial reserves.
• Government mainly produces collective services. Since there are no market prices available, government output is determined from production costs and is estimated as the total of intermediate consumption, compensation of employees, consumption of fixed capital and taxes on production paid by the government itself.

Market output is the output of goods and services sold at economically significant prices.

Non-market output is the output of own account production of goods and services provided free or at prices that are not economically significant. Non-market output is produced mainly by the general government and non-profit institutions serving households (NPISH) sectors.

Output for own final use is the production of output for final consumption or gross fixed capital formation by the producer. This is also known as own-account production.

Intermediate consumption at market prices includes all goods and services used up in the production process in the accounting period, regardless of the date of purchase. This includes for example fuel, raw materials, semi-manufactured goods, communication services, cleansing services and audits by accountants. Intermediate consumption is valued at purchasers' prices, excluding deductible Value Added Tax (VAT). For companies, which do not need to charge VAT on their sales, the VAT paid on their purchases is non-deductible. It is therefore recorded as a component of intermediate consumption.

Not included in intermediate consumption are:

• Purchases of goods by retail / wholesale enterprises which are resold without undergoing any processing.
   
• Purchases of goods used in the production process with a life span of more than one year. These purchases are recorded as fixed capital formation. The use of these goods is spread over their economic life span  and recorded as consumption of fixed capital.

Gross Value Added (GVA) is conceptually the same aggregate as Gross Domestic Product (GDP). They both measure the added value generated in an economy by the production of goods and services. The difference between the two concepts is that GDP is measured after including product taxes (e.g. excise duties, non deductible VAT, etc.) and deducting product subsidies while GVA is measured prior to adding product taxes but includes product subsidies. GVA can be computed for industrial groups and can be looked upon as the sum of wages and profits (compensation of employees and operating surplus in national accounts terminology) in each industry group.

Gross Domestic Product at market prices is the final result of the production activity of resident producer units. It is the sum of the gross value added of the various industries plus taxes and less subsidies on products. It is presented in the accounts at market (or purchasers’) prices.

Net Domestic Product equals Gross Domestic Product minus consumption of fixed capital.

Value added at basic prices is the value generated by any unit engaged in production and the contributions of individual sectors or industries to gross domestic product. It is measured at basic prices, excluding taxes less subsidies on products. Value added at basic prices by industry is equal to the difference between output (basic prices) and intermediate consumption (purchasers' prices).

Value added at factor cost is calculated as follows:

Value added at basic prices

minus     Non product taxes

plus        Non product subsidies

=             Value added at factor cost

Consumption of fixed capital represents the depreciation of the stock of produced fixed assets as a result of normal technical and economic ageing and insurable accidental damage. The consumption of fixed capital is the depreciation of the net stock of produced fixed assets during the year not caused by revaluations because of price changes, new fixed capital formation or discarding of fixed assets.

Taxes on production and imports are compulsory payments to the government and the European Union (EU), which are related to production, imports and to the use of production factors. Taxes on production and imports are classified into taxes on products and other taxes on production.

Taxes on products are related to the value or the volume of products. They are levied on domestically produced or transacted products and on imported products. Taxes on products include taxes on domestic products, taxes on imports and VAT.

Other taxes on production include all taxes on production paid by producers, not related to the value or volume of products produced or transacted. Examples are rates and licences.

Subsidies are current payments from the government or the EU to producers with the objective to influence output prices, employment or the remuneration of production factors. Subsidies include subsidies on products and other subsidies on production.

Subsidies on products are related to the value or the volume of products. They can be separated into subsidies on domestic products and subsidies on imports.

Other subsidies on production include all subsidies on production paid to producers, not related to the value or volume of products domestically produced or transacted. These consist mainly of certain payments to farmers, e.g. Rural Environment Protection Scheme (REPS).

Compensation of employees is the total remuneration paid by employers to their employees in return for work done. Employees are all residents and non-residents working in a paid job. Managing directors of limited companies are considered to be employees; therefore, their salaries are also included in the compensation of employees. The same holds for people working in sheltered workshops. Compensation of employees includes both wages and salaries and employers' social contributions.

Gross operating surplus by industry is the balance that remains after deducting from the value added (basic prices) the compensation of employees and the balance of other taxes and subsidies on production. The operating surplus of the self-employed is called mixed income, because it includes compensation for work done by the owners and their family members. Net operating surplus / mixed income remains after deducting consumption of fixed capital from gross operating surplus / mixed income.

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