Gross Domestic Product, GDP is an ultimate measure of how well a country fares, a window into an economy’s soul, the statistic that provides context to most national statistics. Its use spread rapidly, becoming the defining indicator of the last century.
The GDP figure gives an estimate of the size of a country’s economy as it calculates the value of all goods and services produced.
For Nigeria, the value of its GDP in 2019 was N129.68 trillion.
GDP measures the value added at every stage of production of a final product. The GDP is estimated either by looking at the final value of a product or at the value added at the various stages of its production.
Take the production of beverages example, a farmer produces the cocoa bean and sells to a factory. The factory manufactures the beverage and sells to a wholesaler who in turn sells to a retailer at the grocery store. The final consumer buys from the grocery store at N1000. The GDP can be estimated at the N1000 or an aggregate of the value added at the various stages of production.
How the GDP came to be
After the Great Depression and World War II rose the idea of Gross Domestic Product or GDP in 1937. An economist, Simon Kuznets, at the National Bureau of Economic Research, presents the original formulation of GDP in his report to the U.S. Congress. His idea of the “National Income, 1929-35” was to capture all economic production by individuals, companies and the government in a single measure, which should rise in good times and fall in bad. Thus, GDP was born.
The Nigerian government, just like others track and publish GDP data through a national statistical agency. It is estimated by the National Bureau of Statistics (NBS), collating data collected from various governmental and private sources. The GDP estimates may vary from various international agencies in their publications, however, Nigeria ranked 27th in the world and 1st in Africa.
On a broad note, it is not just the size of the GDP that matters but its growth rate. The GDP growth signifies a positive economy whereas a slowing or retardant growth may indicate the coming of a recession. Furthermore, the increase or decrease in the components’ contribution indicates a shift in the economy.
How to ascertain the advance of a recession?
The GDP is commonly accepted as a measure of the economic health of Nigeria. The GDP is the most important indicator that tells whether the country is in a recession or not.
The National Bureau of Economic Research (NBER) defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months”. Textbook definition describes a recession as a decline in real GDP for two consecutive quarters.
The Nigerian economy fell into a recession in 2016 when she experienced a decline in the GDP growth in four consecutive quarters. The GDP figure shows a decline of -0.36%, -2.06%, -2.24% and -1.30% in the four quarters respectively with an overall decline of -1.51% at the end of the year.
The GDP, however, grew in the preceding years to pull Nigeria out of recession. In 2017, it recorded a growth of 0.82% and 1.91% growth in 2018. The growth in the fourth quarter of 2019 was 2.55% which is the highest growth recorded since 2016.
The current happenings which have resulted in the fall in the crude oil prices and the shutdown of economic activities due to COVID-19 will definitely affect the GDP growth. Analysts are obviously predicting a recession lurking around the corner for Nigeria unless some drastic actions are taken to address it.
Why GDP Matters
Policymakers, government officials, businesses, economists and the public rely on GDP and related statistics to help assess the economy’s well-being and to make decisions on growth. Policymakers will look to GDP when contemplating decisions on interest rates, tax and trade policies. Government economic plans are GDP induced as the figure enable the government to make meaningful plans such as budget, interest rates, monetary policies and the direction of economic research.
The pace at which our economy is growing affects business conditions and investment decisions, as well as whether workers can find jobs. State and local governments rely on GDP and similar statistics to help shape policy or decide how much public spending is affordable. Economists study GDP and related statistics to help inform their research.
The GDP is one of the most cited measures of the economy. GDP growth is a helpful tool to evaluate the health of the economy. It’s the most relevant economic indicator as all other indicators influence its size and growth, thus other indicators are connected to the GDP.