Chart for the day: Growing on Imports

by Rebecca Wilder
Chart for the day: Growing on Imports
Or should I say barely contracting on imports. In the traditional sense, growth in imports does not make a whole lot of sense. Normal economies import and export things, such that statistical agencies subtract the dollar amount of things that are made in other economies but consumed domestically (imports) out of their tally of spending on goods and services (GDP) in order to avoid double counting items. So if I spend $20 on candy at store in some resort town – $9 on taffy made in Monterey, California and $11 on chocolate made in Belgium – the government only counts the $9 candy made in Monterey as part of US GDP.

If imports is the sole positive growth contribution for GDP, that’s tantamount to production falling on goods and services but we don’t want to double-count the drop in spending of imported goods when calculating GDP, so it’s added back.

That’s what’s happening in the euro area. Fixed investment spending has dropped four consecutive quarters. Consumption grew in Q1 2013 but contributed just 0.04% to total growth following 5 consecutive quarters of contraction . Exports tumbled for two consecutive quarters, serving to drag growth -0.41% and -0.36%, respectively in Q4 2012 and Q1 2013. Over the last two quarters, imports has been the only consecutive positive contributor to GDP growth. Some heavy damage has been done in Europe by the austerity drive. Just thought you might want to see this.

Filed under: Euro area, GDP, Growth