Methodology

The system of national accounts is a comprehensive macroeconomic statistical accounting system of the economic activity of the country, which describes sources and uses of the economy.

The member countries of the European Union compile national accounts according to a revised methodology from September 2014. The Hungarian Central Statistical Office (HCSO) made the calculations in line with the new methodology, in compliance with the Regulation of the European Parliament and of the Council, adopted in May 2013.

The methodological requirements of ESA2010 (European System of Accounts) replace the formerly applied, ESA95 system. The new methodology follows up changes in economic environment, takes into consideration new results in research activities and new needs of users.

The new methodology leaves the most important characteristics and basic features of the system of national accounts untouched, at the same time reflects changes in economic life in the past twenty years. It takes into account the spread of information and communication technologies in production processes, the increasing role of intangible assets and intellectual property products and the strengthening of globalisation.

The new methodological requirements are in harmony with SNA2008, the methodology of national accounts published by the UN, adopted and applied all over the world, thus ensuring the global comparability of macro-statistical indicators. The new system is also consistent with the balance of payments statistics (BPM6) of the International Monetary Fund (IMF).

This system is enforced by law for the EU member countries since September 2014.

Definitions

Gross domestic product: on the production side it equals the sum of gross value added (i.e. the difference of the gross output and the intermediate consumption) of all resident producers (institutional sectors or industries) measured at basic prices, plus the balance of taxes and subsidies on products, which cannot be divided among the industries or sectors. This form of definition is valid from 1995.

Gross value added (at basic prices):

Gross output: consists of goods and services that are produced within an institutional unit to be purchased by other institutional units and of those that are produced for own final use. It is valued at basic prices.

The intermediate consumption: consists of the value of goods and services consumed as inputs in the process of production, excluding the consumption of fixed capital. These inputs are purchased from other units. Intermediate consumption is valued at market prices.

Gross domestic product (GDP at purchasers’ prices):

By production approach it is:

By expenditure approach it is:

Gross national income (GNI) is identical to GDP less primary income payable to non-resident units plus primary income receivable from non-resident units and taxes to the EU deducted, subsidies from the EU added. While GDP is a concept of value added, GNI is a concept of income (primary income).

While GDP is a concept of value added, GNI is a concept of income (primary income).

GNI =

+ gross domestic product (GDP) + primary income receivable from non-resident economic units – primary income payable to non-resident economic units – taxes to the EU + subsidies from the EU

Basic price: price used for the evaluation of production. It is the amount receivable by the producer from the purchaser for a unit of a good or service produced as output minus any tax payable and plus any subsidy receivable on that unit as a consequence of its production or sale.

Purchasers’ price: the price actually paid by the purchaser for the product purchased excluding any deductible VAT or similar deductible tax. (It means it excludes taxes on purchased goods and services that are acquired for intermediate consumption and subsidies on products.)

The balance of taxes and subsidies on products: equivalent to the balance of taxes and subsidies related to the acquisition, sales and delivery of the goods and services (customs duties, excise duties, value added tax, producer price subsidy and consumer price subsidy).

Final consumption, total final consumption expenditure: the value of goods and services for individual and collective consumption.

Final consumption expenditure of households: this consists of the expenditure, including imputed expenditure, incurred by resident households on individual consumption of goods and services.

Final consumption expenditure of the government: it covers the consumption financed by the central and local government. It also includes goods and services consumable by households (public health, education, depreciation of dwellings under the ownership of local governments etc.) and collective consumption (state administration, defence, etc.).

Final consumption expenditure of non-profit institutions serving households: it covers final consumption financed by this sector, entirely belonging to households’ consumption.

Social transfers in kind: the total of products and services consumed by households and financed by the government (including social security) or non-profit institutions. To estimate consumption derived from social transfers in kind, an indirect method was applied, using data of intra-year labour statistics.

Household consumption, apart from consumption expenditure, includes the social transfers in kind, too. To estimate the consumption expenditure within household consumption, quarterly data of household statistics and of changes in the volume of retail trade are used.

Collective consumption: those goods and services are considered that are used by the inhabitants not individually but to which they are entitled as members of the community. Main items of the collective consumption: public administration, defence, scientific research, public lighting, maintenance of public roads, prevention of damage caused by flood and subsoil water, maintenance of public parks, street cleaning services including collection of waste, geological research. Collective consumption can be financed exclusively by the general government. It is estimated quarterly in an indirect way, using data of labour statistics.

External trade balance: the balance of the exports and imports of goods and services of the national economy. Turnover of goods comprises general turnover of commodities based on foreign trade statistics (including the turnover between industrial free zones and abroad), repair charges, inward and outward processing (registered at gross value), the repair (at net value) and the returned goods. Turnover of services includes tourism (expenditures of non-residents in Hungary and expenditures of residents abroad), transactions of business and other services between residents and non-residents. For the estimation, data of foreign trade statistics on goods and on services, as well as information from survey on demand of tourism were used.

Gross fixed capital formation (investment) data are estimated on the basis of the intra-year investment statistics report of the HCSO, as well as the information from other special statistics (construction, dwelling statistics) concerning small value investments and investments by small organisations.

Gross capital formation is measured by the total value of gross fixed capital formation and changes in inventories.

Gross fixed capital formation includes the value of purchased or own produced tangible fixed assets and intangible fixed assets, the increase of used assets in value terms, capital transfer in kind from abroad and rental paid for financial leasing.

The value of gross capital stock comprises the real or estimated new current acquisition values of all the fixed assets which are currently used in production without considering their actual deteriorations.

Consumption of fixed capital represents the amount of fixed assets used up, during the period considered, as a result of normal wear and tear and foreseeable obsolescence. Depreciation is a synonym to Consumption of fixed capital.

Net capital stock is the value of the fixed assets which are still used and valued at current prices assumed that all assets were purchased in the current year. The net capital stock can be calculated as the difference of Gross Capital Stock and the accumulated Consumption of fixed capital (depreciation).

Perpetual Inventory Method is the modelling tool for the estimation of annual changes in the Capital Stock. PIM estimations provide results on the current value of assets previously acquired and reported as part of GFCF, and still used in production. The change in the gross value of the fixed assets stock could be calculated as the following:

Inventories are produced assets which covers the value of purchased materials, goods and materials (at new replacement value), as well as the value of inventories on finished goods and work in progress (e.g. livestock being raised for slaughter and forests for logging ) at basic prices.

Data of inventories relate to entrepreneurs and corporations employing more than 4 persons, to the whole economy.

Changes in inventories is the value of change in the own produced and purchased inventories of each sector that occurs during the accounting period.

Enterprise with foreign direct investment (FDI): any enterprise with or without legal entity in which an investor, who is resident in another economy, owns at least 10 per cent of equities and voting rights or a share corresponding to it. Data do not refer to those companies with a share of less than 10 per cent, which pursuing any activity abroad and involved in channelling funds.

Employment: in national accounts covers all persons (employee, self-employed) engaged in some productive activity that falls within the production boundary of the system. The category of employment in national accounts differs from the same category in LFS, because national accounts are based on domestic concepts.

The main items for correction are:

resident persons, who works for non-resident producer units are included in LFS, but not in the national accounts system (minus)

non-resident persons, who works for resident producer units in resident production unit are excluded in employment statistics, but they are included in the domestic concept of national accounts (plus)

employed persons living permanently in an institution (social rehabilitation institutions, residential homes, hospitals, prisons, hotels etc.) they are excluded in LFS but included in the national accounts system (plus)

national accounts include employees, who are excluded from LFS because of age-limit (plus)

specific estimates about the number of workers engaged in production undertaken entirely for their own final consumption or own capital formation, the number of domestic personnel employed at households as employers, employment in illegal activities

Quarterly national accounts

The HCSO has been publishing its quarterly GDP calculations since 1996.

On production side, the GDP compilation is made at current and constant prices. The calculation of current price data are based on statistical and administrative data sources. During the calculations quarterly time series, consistent with available annual data, are extrapolated. Constant price data are calculated according to the annual deflation, taking into consideration the characteristics of chain-linking quarterly data.

In quarterly estimations the chain-linking method has been applied for constant price calculations. The introduction of chain-linking was necessary for several reasons: on the one hand the previous year weights reflect the economic structural changes better than the base year weight structure, which was changed at five-year intervals, and on the other hand this calculation method corresponds to the latest EUROSTAT regulations. In case of quarterly time series, first constant price data are calculated at average prices of the previous year from current price data, and then the whole time series is chain-linked back to 1995 with the help of indices. The time series thus produced is built on year 2005 prices, which are only reference year prices, and the base year determining the structure is the previous year for all data of the time series, i.e. the base year annually differs. As a result, data of the time series at average prices of 2005 are not additive within the given quarter, i.e. the sum of sub-aggregates are not necessarily equal to an aggregate, therefore chain-linking has to be carried out in case of every time series (separately for sub-aggregates and aggregates).

Our calculations correspond to the EUROSTAT recommendations, the main steps are:

Annual weights should be used in chain-linking of quarterly national accounts.

Volume measures in quarterly national accounts should be derived by applying a Laspeyres formula.

The one-quarter overlap method (using the 4th quarter as the linking period) together with an appropriate benchmarking technique is considered best for linking annually chain-linked quarterly national accounts. The annual overlap method constitutes a valid alternative which is simpler to apply.

Seasonal adjustment should be carried out after chain-linking.

Linking techniques for annually chain-linked quarterly national accounts

According to the bibliography, three linking techniques are known for calculating annually chain-linked quarterly national accounts:

Annual overlap: the average annual prices of the previous year are used as weights for each of the quarters in the current year, with the linking factors being derived from the annual data.

One-quarter overlap: one quarter of the year (e.g. the fourth quarter) is compiled at both the average prices of the current year and the average prices of the previous year. The ration between the estimates for the linking quarter provides the linking factor.

Over-the-year: all quarters are compiled at the average prices of both the current year and the previous year. The year-on-year growth rates are calculated and then linked together.

HCSO decided to use the annual overlap method. On one hand, this technique automatically meets the time consistency criterion (i.e. additivity between quarterly and annual data). On the other hand, for applying one-quarter overlap method the current price data of the given quarter should be recalculated on the average prices of the current year which is impossible in practice. Over-the-year technique is not supported by EUROSTAT.

Annual overlap method

Step 1: constant price calculations for every quarter at the average prices of the previous year; annual data are equal with the sum of the data of four quarters

Step 2: transformation of the constant price data into the average of the previous year = 100.0 volume indices

Step 3: linking of the volume indices with change of reference and basis years which is carried out with help of the annual indices of the years as links. Firstly, the average of the previous year = 100.0 volume indices are linked into the reference year (in this case the average of 2005) = 100.0 volume indices. That is, the average of the previous year = 100 volume index for the given period is multiplied with the annual indices of the previous years (as links). Finally, the same period of the previous year = 100.0 volume indices can be calculated with help of these average of the 2005 = 100.0 volume indices.

Methodological notes for seasonal adjustment

The seasonal adjustment of GDP data was made, in accordance with the principles uniformly applied in the HCSO, by the TRAMO-SEATS method with the help of Demetra software. The programme options are fixed annually (the applied ARIMA model, its parameters, the regression variables quantifying the effects of working days and holidays), which change only if it is justified by the revision of basic data, or if the character of time series behaviour is strongly modified. Resulting from the character of calculation, the seasonally adjusted data in all periods can be overwritten by the last run. In case of GDP total data series, seasonal adjustment is made for the data previously adjusted for calendar effects, in compliance with EUROSTAT recommendations.

Seasonal adjustment is made on production and expenditure side for data chain-linked back to the average prices of 2005 at the level of publications, and indices are calculated from seasonally adjusted data thus obtained.

As seasonal effects occur within the year, they cannot affect the values performed during annual calculations. While the calendar effect may differ from year to the other, due to the different number of the working days. For the consistency between the seasonally adjusted quarterly data and the annual data, the output of Demetra is reconciled. The difference between the annual sum of seasonally adjusted quarterly data and calendar adjusted annual data - applying the principle of pro-rating - is allocated for sub-aggregates according to the share of each quarter. In case of the series where no calendar effect can be detected, the calendar adjusted series correspond to the unadjusted series. More »

Calculation of contribution to growth

Contributions to growth show the factors behind the GDP changes in aggregates rather than just growth of series in their own right. So growth rate of the factors are weighted by using their shares from GDP total. Therefore, the data used for calculation of weights should be additive.

Due to the applied chain-linking method (prescribed by EU regulations) the additivity does not exist between the GDP total and its components at the reference year prices. Therefore our calculations were based on the previous year prices data, where the additivity still exists. From these data GDP components were calculated at actual year average prices (like 2008 Q1 at 2008 average prices). From this, contribution to growth can be easily obtained at 2009 Q1 as the difference between value added in 2009 Q1 at previous year prices and that of 2008 Q1 at 2008 average prices divided by GDP total in 2008 Q1 at 2008 average prices.

The rest of the world accounts record transactions between resident and non-resident units. These accounts are drawn up from the point of view of the rest of the world. Thus, what is a resource for the rest of the world, is a use for the total economy and vice versa. On the resources side of external account of goods and services imports of goods and services have to be shown, on uses side exports of goods and services have to be accounted.

On the resources or uses side of external account of primary incomes and current transfers, all distributive transactions have to be accounted in which the rest of the world sector is involved.

The main sources of the rest of the world quarterly account are the balance of payments and the data on external trade statistics, the compensation of employees and EU-transfers are calculated by the KSH from different data sources.

The main item of external quarterly account of primary incomes is the property income received from the rest of the world and paid to the rest of the world containing interests, dividends and reinvested earnings of foreign investments. Reinvested earnings are identical to the profit after taxation realized in a given year less dividends payable. Since dividends may not be paid from profits earned within the given period, reinvested earnings may even be negative reflecting to the fact that income repatriated from the company has been paid from own capital.

The revision policy of quarterly national accounts

The quarterly national accounts data can be revised backwards in every quarter. The cause and the period of data revision is shown in the table below. The substance of the revision policy in case of quarterly data is the possibility for backwards data improvements in the quarters of the current year and the preceding year – if the preceding year’s data based on annual data sources not yet published.

In addition, if annual methodological improvements are introduced the whole series can be revised in December each year.