Week 9, 2013: Sector Contributions to GDP

Summary: The second estimate of fourth quarter GDP, released this morning, confirmed that the economy shrunk by 0.3% at the end of last year. However, there was also additional information on what caused the negative growth.

What does the chart show? The chart shows the percentage change in GDP compared to the previous quarter over the past year, broken down into the three main sectors.  The black bar shows total GDP. The blue, green and red bars show the contribution that the production, construction and services sectors respectively made to GDP.  In theory, the three numbers should add up to make the total GDP change, but due to the effects of rounding that isn't always the case.

Why is the chart interesting? The 1% growth in the third quarter of 2012 was largely driven by the services sector, and specifically the Olympics.  It was therefore natural to assume that the 0.3% contraction in the final quarter was due to a "return to normal" in the services sector, but that unfortunately does not seem to have been the case.  

Negative growth in the services sector did make a difference (particularly in the hotels, catering, and "other" categories), but the main contributor to the poor growth figures seems to be the production sector.  Independently of the service-driven growth in Q3, the manufacturing and extraction industries both shrunk in the fourth quarter, and this appears to be what led to the overall -0.3% figure.  If you discount the contribution of the production sector, GDP growth would have been around 0%, as construction and services would have roughly cancelled each other out.