According to the latest insights of Statistics Netherlands (CBS), real gross domestic product (GDP) contracted by 1.4% in the first quarter of 2014 relative to the last quarter of 2013. This disappointing rate was caused by a number of non-recurring factors. Natural gas consumption and exports were substantially lower as a result of an exceptionally mild winter. The large number of passenger cars purchased by households and businesses before the end of 2013 with a view to benefiting from favourable tax rules is another factor. These caused consumption and investments to increase in the fourth quarter of 2013 and to decrease in the first quarter of 2014.
From quarters to years
Individual quarters often play an insignificant role in the public debate about projections, given that the emphasis is on annual figures. Quarterly figures are nevertheless essential when preparing projections, as the ultimate annual figure is based on a combination of the quarterly figures of the current year and those of the preceding year. The example in Table 1 shows how this is done. The top row presents quarterly GDP growth, giving final data for 2013 Q1 to 2014 Q1 and projections for 2014 Q2 to Q4. A general rule of thumb, according to which each quarter is given a certain weighting between 0 and 1, is used to aggregate these quarterly figures into an annual figure (the second row in Table 1). The first quarter of 2014 is multiplied by one and the fourth quarter is multiplied by one-fourth to project this year’s growth. Multiplying the quarter-on-quarter growth by the weightings and subsequently adding up the resulting percentage-point contributions yields an approximate annual growth rate, in this case 0.2%. Part of the growth in the final quarters of a given year is thus allocated, or ‘carries over’, to the following year. In 2014, this carry-over from 2013 amounts to 0.8 percentage point. To put it another way, if quarter-on-quarter GDP growth were to amount to 0% in all quarters of 2014, the annual growth rate for 2014 would be 0.8%.
Table 1 - Composition of GDP growth in 2014 by quarter