FOR PARTICIPANTS ONLY STAT/QGDP/OECD.REP.

11 July 2002 ENGLISH ONLY

ECONOMIC AND SOCIAL COMMISSION FOR ASIA AND THE PACIFIC

REPORT OF THE OECD/ADB/ESCAP WORKSHOP ON QUARTERLY NATIONAL ACCOUNTS Bangkok, 17-21 June 2002

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* This report has been issued without formal editing.

Report on the OECD/ADB/ESCAP Workshop on Quarterly National Accounts 17-21 June 2002, United Nations Conference Center, Bangkok, Thailand I. Background

The 12th Meeting of the Working Group of Statistical Experts held on 27-30 November 2001 endorsed an action plan on the implementation of 1993 SNA which included the compilation of Quarterly National Accounts (QNA). The workshop was organized as part of the action plan and in response to the increasing demand for quarterly GDP as part of the data set in the General Data Dissemination System (GDDS) initiated by the IMF. It was addressed to two groups of countries: those that are contemplating to compile QNA and those that are current ly compiling the QNA. For the former, the workshop was designed to familiarize the national accounts compiler on the sources, methods and analysis of QNA. For countries currently compiling QNA, the workshop included software for benchmarking and seasonal adjustment of the QNA series. The participants from these countries presented their experiences in the use of data sources, compilation, benchmarking and seasonal adjustment of QNA series. OECD demonstrated the use of software for benchmarking (Bench) and seasonal adjustment (Demetra) of quarterly national accounts series. The following countries participated in the workshop: Australia; Bangladesh; Bhutan; Cambodia; Hongkong, China; India; Indonesia; Lao PDR, Malaysia; Maldives; Mongolia; Philippines; Republic of Korea; Singapore; Sri Lanka; Thailand and Vietnam. Representatives from OECD, ADB and ESCAP served as resource persons in the workshop.
II. Summary of the Proceedings

A. User needs for quarterly national accounts

Mr Abuzar Azra of ADB, Mr Bunluasak Pussanrungsri of Bangkok Bank, Thailand and Ms. Somsajee Siksamat of the Bank of Thailand presented the background papers.
1. Uses ?? Ministries of Finance and Central Banks use quarterly national accounts (QNA) for short term macro-economic policy, and enterprises use them for business planning. ?? Governments use QNA for determining policies on interest rate and money supply. ?? Firms supplying goods and services to the domestic market use the QNA to adjust their production plans to current demand for their products. ?? Commercial banks will often estimate GDP growth for the coming year in order to set their loan targets. They will then use the QNA to adjust their initial forecast of GDP growth during the course of the year. ?? Another important use of QNA is to detect turning points in the business cycle. For this purpose it is best to use seasonally adjusted estimates. 2. Expenditure versus production approaches ?? Most countries find it is easier to estimate GDP by estimating value added by kind of activity rather than by estimating final expenditures. However, most of the uses mentioned above require estimates of GDP by final expenditure rather than by kind of activity. ?? For short-term macro-economic policies, governments need to know the growth of capital formation and private expenditure. ?? For business planning, firms are interested in the demand for their output.

3. Timeliness ?? Users need QNA to be released as soon as possible after the end of the quarter. A publication delay of 8 10 weeks after the end of the quarter is a reasonable target for countries starting to publish QNA for the first time. ?? Some countries release a flash (or preliminary) estimate, which is usually confined to total GDP growth in volume terms. As these first estimates are based on partial returns, they are likely to be substantially revised when the full set of quarterly accounts are published 2 or 3 months after the end of the quarter. If the revisions are very large, users complain and, to avoid criticism, countries sometimes stop releasing flash estimates. National statistical offices must themselves decide whether their flash estimates are sufficiently accurate to justify publication. 4. Other indicators ?? There are ranges of short-term indicators that can be used to monitor the current economic situation. These include retail sales statistics, import/export statistics, employment/unemployment statistics, industrial production indicators, and results of business tendency surveys. 5. Transparency ?? The release of QNA should be accompanied b a description of the statistical methods used to y make the estimates. This is particularly important when the quarterly estimates give results that are counter-intuitive. An example is when rising private consumption and falling imports is accompanied b an increase in inventories. In the case of Thailand, estimates of inventory y changes were mentioned as being particularly unreliable but it is certain that they are problematic in most of the ESCAP countries represented at the meeting. 6. Forecasts ?? If agencies that compile national accounts make forecasts of the growth of GDP for the coming year or quarter, these may influence the national accounts compilers. Considerable judgement is required in compiling national accounts but these judgements should be as objective as possible. Knowledge that they have already made an estimate of the GDP growth may lead the national accounts compilers to lean towards meeting the declared forecast instead of using their objective judgement. B. Data Sources for Compilation of Quarterly GDP

?? Mr Kil-Hyo Ahn from OECD presented the background paper on data sources and compilation practices of OECD-member countries. The country experiences were presented by Mr Raymundo Talento of the Philippines, Mr Ramesh Kolli of India and Ms R. M. Fernando of Sri Lanka.
1. Types of Data Sources for Quarterly GDP compilation

?? Monthly or quarterly surveys of establishments/enterprise; households surveys on employment, income and expenditure and economic activities; administrative-by product of government agencies and related indicators are the most common data sources for compilation of Quarterly GDP. ?? Countries with relatively centralized statistical system use more of quarterly or monthly surveys of establishments or enterprise for compilation of quarterly national accounts. Those with decentralized statistical system make more use of administrativebased data or proxy indicators to estimate or extrapolate value added by economic activity. Countries in transition still rely on administrative reports from the smallest government administrative units, which are consolidated progressively until the national level. ?? Data on harvest of crops is most commonly used for estimation of quarterly value added for agricultural crops; standing crops are not valued nor counted as output. Where quarterly data on harvest are not available, allocation of harvest for the reference quarter during the cropping seasons which cut across quarters are based on modal harvest months of regions or province. 2

?? Value added tax collected by government on goods and services is one of the sources of indicators for estimation of QGDP. However, although the recording of value added tax is based on accrual basis, delays in reporting the payment of the tax could create distortion in the current quarter estimates.
2. Quality and Timeliness of Basic Data

?? The quality of basic data input varies among the different data sources. Surveys are the most reliable sources for compilation of QGDP but in some countries response rate is low and slow. For countries where response rate is high and timely, flash estimates of aggregated estimates are released soon after the reference quarter followed at a later date during the next quarter by preliminary release of more detailed components of GDP. ?? Inconsistencies of data from different sources cause problems in compilation of QGDP. National accounts compilers need to analyze and validate the data to determine the most appropriate source for compilation. ?? The balance between the quality and timeliness of the basic data is crucial in compiling the QGDP according to the release calendar set by the SDDS subscribing countries. When additional data become available, revisions are made for better quality estimates. However, user education is important so t at they will understand and h appreciate the need for revision in attaining better quality estimates.

C. Estimation of Quarterly GDP by Economic Activity The background papers were presented by Ms Tan Seng Yueh of Singapore and Mr Nguyen Van Nong of Vietnam
1. Estimation

?? In general countries estimate QGDP by economic activity and expenditure. Very few compile QGDP by income. Some countries compile only one set of estimate of GDP either by economic activity or by type of expenditure. ?? Some countries were able to demonstrate that even with limited data, compilation of QGDP could be possible through the use of various indicators. Improvement of basic data input would be then become a normal follow up of compilation process of QGDP. Countries, which are not currently compiling QGDP can start compiling quarterly GDP initially for internal purposes and eventually for release when the estimates become more credible. ?? Countries estimate quarterly value added by economic activity directly from basic data source or indirectly by extrapolation using indicators derived from available data. For some countries, estimation parameters derived from benchmark estimates, such as value added ratio, remains constant for the annual and quarterly estimates until the next benchmark estimates. The countries have varied approaches in treating inconsistency between the sets of GDP estimates derived by economic activity and expenditure. At the annual level some countries use the Supply and Use Table to balance the estimates without any statistical discrepancy. The common practice appeared to be to show a statistical discrepancy in the estimates of GDP by expenditure. ?? The countries use various approaches in estimating components of GDP by economic activity. Where quantity and base year prices of output are available, countries use 3

2. Volume measure of Quarterly GDP

revaluation. For economic activities where producer's prices are available volume measure are derived from current price estimates by price deflation. For some sectors volume extrapolation is found more suitable. ?? Australia uses chained volume measure for annual estimates. Quarterly estimates use the prices of, and referenced to the latest completed year (t-2) Quarterly chaining is not used as it leads to drift in quarterly estimates. Additivity of GDP components is maintained in the year since the reference year (t-2, t-1, and t). D. Compilation of GDP by Type of Expenditure Ms Wanida Mahakit of Thailand, Mr Raymundo Talento of the Philippines, Mr Leslie Tang of Hongkong, China and Mr Zainuddin bin Ahmad of Malaysia presented the background papers for the session.
1. Demand for GDP Estimates

?? Users of national accounts prefer GDP by type of expenditure especially for short term forecasting although more countries comp ile GDP by type of economic activity. The latter provides government information on the structure and growth of the different economic activities. In addition since most government agencies are organized along economic activities, they provide data for compilation. Many OECD- member countries have similar experience. ?? Benchmark estimates of household consumption expenditure for annual GDP are estimated based on household income and/or expenditure surveys, which are conducted regularly every two to 10 years in many countries of the region. Quarterly estimates are estimated through commodity flow or extrapolated based on retail sales or other related indicators. The balance of payment statistics and tourist expenditure from tourism surveys are used as basis for estimating expenditure of resident abroad and of non-residents in the country. ?? Classification by ISIC is inappropriate for classification of final consumption expenditure. CPC would be more applicable in Supply and Use T ables. For better analysis COICOP is used for household consumption expenditure, COFOG for general government consumption expenditure and COPNI for private non profit institutions serving households. Deflation of household final consumption expenditure classified by COICOP would also be more convenient as the same classification is used in compilation of CPI. ?? The estimation of government consumption expenditure from non- market output of government services is based on input rather than output. As such labour productivity is not captured in the estimates. ?? Some countries derive final consumption expenditure for households and non profit institutions as residual. These countries do not have regular household expenditure survey or the results of the survey, which are conducted primarily for taking the weights for CPI are not reliable enough as basis for estimates of household expenditure surveys. ?? CPI components are used as deflators for the different expenditure items. Deflators for expenditure abroad by resident are based on the CPI of major destination countries and foreign exchange rates. ?? The estimates of value of construction are based on establishment/enterprise surveys, building permits and production and imports of construction materials. From establishment/enterprise surveys the questionnaire should differentiate between the 4

2. Final Consumption Expenditure

3. Gross fixed capital formation

value of construction of main contracts and sub-contracts to prevent duplication. When estimates are based on building permits various approaches are used to determine the value of construction on a quarterly basis. The value of construction put in place is estimated based on a construction schedule referred to as S curve (Philippines) or certified payment by quantifier surveyor (Hong Kong, China). Commodity flow is used when flow parameters are available from input output tables. ?? Deflation of value of construction based on composite price index of construction materials and construction wage rates is incomplete because the index does not include operating surplus. Some countries use a tender price index for the construction as deflator. ?? In the privatization of government enterprise value of real assets transferred to the private sector should not affect the value of capital formation for the whole economy. ?? Most countries have incorporated software as part of capital formation 4. Change in inventories ?? Change in inventories is the weakest of the estimates among the different components of GDP by expenditure. Estimation for QNA is even more difficult than for annual. In some countries compiling QNA, this component is taken as residual of QNA from the QNA level by economic activity. ?? For agricultural crops, the value of harvest is taken as the output for the quarter, the value of standing crop is not included as work in progress as recommended in the 1993 SNA. ?? Some countries with a well developed quarterly survey of establishments enterprises measure inventory of finished goods, work in progress, goods for resale and raw materials. For work in progress, valuation is based on the costs of production.
5. Export and Imports of Goods and Services

?? Exports and imports of goods are estimated directly from foreign trade statistics. In most of the countries, estimates of flow of non factor services is derived from the Balance of Payment Statistics. For few countries where the Monetary Authority do not regulate the banks flow of non factor services are indirectly estimated from various sources covering expenditure of tourists, freight, merchanting, financial and business services. ?? Countries experienced problems in the estimates of exports due to depreciation of exchange rates; export trend was increasing but production was not. ?? Export and import of goods at constant price are generally estimated using price deflation. For some sectors, volume extrapolation is used. In the case of imported computers and related equipment, price indices developed by the United States could be used as deflators after adjusting for changes in exchange rates. ?? The most common problem raised in the compilation of Quarterly GDP was the timeliness and quality of basic data input. Since most of those compiling Quarterly GDP are registered with the IMF SDDS, the series have to be released on time. National accounts compilers have to balance timeliness and quality of the estimates. In general the initial estimates are revised several times. ?? For countries initiating the compilation, the staff has inadequate training on the compilation of quarterly GDP. Moreover, the use of constant parameters in indirect estimates for all quarters reduces the credibility of the estimates.

E. Common Problems in Compilation of Quarterly GDP

F. Revision, Publication and User-producer Forum ?? Mr Michael Morgan of Australia and Ms Tan Seng Yueh of Singapore presented the background papers. 5

?? Countries compiling QNA undertake several revisions; during the year to incorporate additional data for the previous quarter estimates, when the independent preliminary annual estimates; and when the preliminary annual estimates are completed. ?? For countries participating in SDDS, official release of QNA are made public through a release calendar issued at the beginning of the year or a prior announcement in the newspaper. In most countries, a press conference is held for the release of the estimates. Countries release the estimates on their web site as well as printed form. ?? User-producer meetings serve as a good way to get cooperation from the data providers including business and to give users a better understanding of the QNA.
G. Benchmarking Techniques

?? Mr Michael Morgan of Australia, Ms Mahakit of Thailand and Mr Leslie Tang presented their experiences in benchmarking QNA. Ms Fenella Maitland-Smith demonstrated the benchmarking software called BENCH. ?? The discrepancy in the quarterly and annual estimates are due to many reasons. These include difference in coverage, sampling error, imputation methods for non response, inconsistent data, outliers and definitions. While QNA provide indicators of short-term movement, estimates of annual levels are more reliable than the sum of the quarters. Benchmarking is not usually necessary for components of QNA which are computed based on actual data and not revised, such as government output and expenditure. ?? The most widely used technique for benchmarking among the countries is based on the Denton approach. The method is applied to the most detailed components of the QNA. ?? Actual application of BENCH to country data of some of the participants demonstrated the accessibility of the software in benchmarking quarterly data.
H. Seasonal Adjustment

?? Ms Fenella Maitland-Smith of OECD and Mr Michael Morgan of Australia provided the background presentation of the topic; Ms Maitland-Smith then demonstrated Demetra, the software developed by Eurostat for seasonal adjustment. Mr Jin WookPark of the Republic of Korea and Mr Soegarenda Sosromihardjo of Indonesia presented their experiences in seasonal adjustment of QNA. ?? Preliminary analysis of charts of the data series will help in identifying whether irregular values are outliers, trend break or change in seasonal pattern. In some countries where outliers are detected, the values are first adjusted before seasonal adjustment. ?? Seasonal adjustments are made only for series, which have seasonality; those without could be left as is. Quarterly series are benchmarked first before seasonal adjustment. For constant price estimates of QNA estimated by price deflation, seasonally adjusted series are derived by dividing seasonally adjusted current price estimates by seasonally adjusted price index series. ?? The participants applied Demetra in actual data from their countries. The participants found the software easy to apply. Participants were welcome to send inquiry to the OECD if they encounter problems in actual use of the software. OECD also provided the user manual for reference. Question was raised on how to deal with moving holidays such as the Ramadan in applying Demetra to the QNA series. OECD will raise the issue with the authors of the software. I. Future Plans ?? Participating countries which are contemplating to compile Quarterly GDP presented the status of the compilation of SNA. They identified the possible data support for the compilation and the technical support needed to improve their capability to extend the 6

current compilation of annual GDP to quarterly. At the moment, their emphasis is to complete the data set for GDP by economic activity and type of expenditure at current and constant prices and to improve the quality of the estimates. ?? Several areas for technical assistance were mentioned. These include training workshops both at the national, regional and international level, advisory services, and training through attachment to other national accounts compiling agencies, and funding for special studies.
J. Summary Possible Follow-up Activities

?? Mr Derek Blades from OECD presented the summary of the workshop and highlighted the key points of the workshop. ?? Among the topics identified for future workshops on national accounts were: Using Benchmark Demetra Publication of QNA Price Deflation Annual chaining Quarterly Supply and Use Tables

III.

LIST OF PARTICIPANTS

AUSTRALIA Mr Michael Morgan, Assistant Director, National Income and Consumption Section, National Accounts Branch, Australia Bureau of Statistics, Belconnen BANGLADESH Ms Aziza Parvin, Deputy Director, National Accounting Wing, Bangladesh Bureau of Statistics, Ministry of Planning, Dhaka BHUTAN Ms Sangay Bida, Assistant Statistical Officer, Central Statistical Organisation, Planning Commission Secretariat, Thimphu CAMBODIA Mr Keo Chettra, Head, National Accounts Division, National Institute of Statistics, Phnom Penh HONG KONG, CHINA Mr Leslie Tang Wai-kong, Senior Statistician, National Income Branch (2), Census and Statistics Department, Hong Kong INDIA Mr Ramesh Kolli, Director, Ministry of Statistics and Programme Implementation, New Delhi INDONESIA Mr Soegarenda Sosromihardjo, Head of Sub-Directorate for Trade and Services Accounts, BPS - Statistics Indonesia, Jakarta LAO PEOPLE'S DEMOCRATIC REPUBLIC Mr Samaychanh Boupha, Deputy Director, National Statistical Center, Vientiane MALAYSIA Mr Zainuddin bin Ahmad, Assistant Director, Nationals Accounts Statistics Division, Department of Statistics, Putrajaya Mr Mohd. Yazid bin Kasim, Assistant Director, National Accounts Statistics Division, Department of Statistics, Putrajaya 8

MALDIVES Ms Fathmath Hana Mansoor, Assistant Statistical Officer, Statistics Section, Ministry of Planning and National Development, Male MONGOLIA Ms Baasanjav Radnaabazar, Deputy Chief of National Accounts and Research Department, National Statistical Office of Mongolia, Ulaanbaatar PHILIPPINES Mr Raymundo J. Talento, Director, Officer- in-Charge, National Statistical Coordination Board, Makati REPUBLIC OF KOREA Mr Jin Wook Park, Acting Associate Director, National Income Statistics Team, Economic Statistics Department, Bank of Korea, Seoul SINGAPORE Ms Tan Seng Yueh, Manager, Economic Accounts Division, Department of Statistics, Singapore SRI LANKA Ms R.M. Fernando, Senior Statistician, National Accounts Division, Department of Census and Statistics, Colombo THAILAND Ms Wanida Mahakit, Acting Director, National Accounts Division, National Economic and Social Development Board, Bangkok Ms Somsajee Siksamat, Team Executive of Economic Indicators Team, Bank of Thailand, Bangkok Mr Bunluasak Pussarungsri, Senior Economist and Vice President, Research Department, Bangkok Bank Ltd., Bangkok VIET NAM Mr Nguyen Van Nong, Deputy Director, System of National Accounts Department, General Statistics Office, Hanoi

OBSERVERS

Ms Somjit Janyapong, Director of Private Consumption Expenditure Section, National Accounts Division, National Economic and Social Development Board (NESDB), Bangkok Mr Apichai Thamserms ukh, Policy and Plan Analyst 7, Production Section, National Accounts Division, National Economic and Social Development Board (NESDB), Bangkok Mr Pongpat Kurowat, Assistant Vice President, Research Department, Bangkok Bank Ltd., 333 Silom Road, Bangkok Ms Angkana Ratchtorn, Specialist, Research Department, Bangkok Bank Ltd., Bangkok Ms Anong Phungsunthorn, National Accounts Division, National Economic and Social Development Board (NESDB), Bangkok Ms Suchada Kaewmadeengam, National Accounts Division, National Economic and Social Development Board (NESDB), Bangkok Ms Supawadee Rungsingsakul, National Accounts Division, National Economic and Social Development Board (NESDB), Bangkok Ms Jittraporn Makkrajang, National Accounts Division, National Economic and Social Development Board (NESDB), Bangkok Ms Nawarot Parakmusit, National Accounts Division, National Economic and Social Development Board (NESDB), Bangkok Mr Peeranat Dangskul, National Accounts Division, National Economic and Social Development Board (NESDB), Bangkok Ms Jitmanee Dabbhasuta, National Accounts Division, National Economic and Social Development Board (NESDB), Bangkok Mr Sakda Suntivong, National Accounts Division, National Economic and Social Development Board (NESDB), Bangkok Mr Athikaset Thongves, National Accounts Division, National Economic and Social Development Board (NESDB), Bangkok Ms Jindarat Thaiphanich, National Accounts Division, National Economic and Social Development Board (NESDB), Bangkok

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Ms Aekkanush Nualsri, National Accounts Division, National Economic and Social Development Board (NESDB), Bangkok Ms Udomsuk Khieopong, National Accounts Division, National Economic and Social Development Board (NESDB), Bangkok

ADB SECRETARIAT

Mr Abuzar Asra

Development Indicators and Policy Research Division, Economics and Research Department Assistant Statistics Analyst, Development Indicators and Policy Research Division, Economics and Research Department

Ms Mary Jane V. David

OECD SECRETARIAT

Mr Derek Blades Directorate Ms Fenella Maitland-Smith

Head of Division for Non-Members, Statistics

Principal Administrator, Statistics Directorate

Mr Kil - Hyo Ahn

Senior Consultant (National Accounts), Statistics Directorate

ESCAP SECRETARIAT Mr Joel Jere Statistician, Statistics Development Section, Statistics Division Regional Adviser on National Accounts, Programme Management Division Associate Statistician, Statistics Division

Ms Heidi Arboleda

Mr Eric Hemouet

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