GDP Growth Vs. GDP Trend

In economic lexicon, more often than not GDP growth and GDP trend are used interchangeably.  However, this is a fallacy that suffers from the malaise of generalization.  The two concepts of GDP trend and GDP growth, though owe their genesis to the same source, namely a country’s gross domestic product. However there is a vast difference between the two on a myriad of levels which are conceptual, fundamental, statistical as well as their instrumentality for practical purposes.

Conceptually, GDP growth typically measures the celerity or rapidity of the growth of the total value of products and services produced by a country.  A growth in GDP, after adjustments are made to it, suggests an expansion of the production capacity of a country’s resources.  This phenomenon is more or less a positive phenomenon, which, by registering its existence in a statistical evaluation creates the scope for gauging many other variables like per capita income or net disposable income.  In other words, GDP growth is basically an indicator of positive signs of the health of an economy. It is mainly because of this reason that GDP is also used as a parameter for measuring a nation’s economic health.

In stark contrast, a trend in GDP is a mere statistical phenomenon. Moreover it may be positive or negative. It indicates the trajectory of the movement of the GDP figures as a result of the economic environment of a nation.  Unlike GDP growth, a GDP trend may not be a broad indicator of the economy’s health, as it may occur due to a variety of reasons and may not specifically attach itself to other phenomenon. Basing a more comprehensive evaluation on a GDP trend may result in a half baked theory that may not be entirely pragmatic. GDP trends are instrumental in getting the direction of the growth trajectory of a country.

Interestingly, a GDP growth will always be a trend but a GDP trend may not always be termed as GDP growth. Moreover, GDP growth is more of a long term phenomenon, unlike GDP trends that may have a span of shorter intervals.  Even for that matter, a trend may be of various types. For instance, the GDP figures may show signs of slump or prosperity, depending on any cyclical variation that the economy may be influenced by.  Or for that matter any random parameter may lead to a different trend of the GDP trajectory.

To define GDP in layman terms is the value of total goods and services produced in an economy. A country’s gross domestic product can be measured in two ways, namely the income approach and the expenditure method. In the former method, the value of GDP is arrived at by calculating the total, income earned by individuals, net of any subsidies offered, while in the latter; GDP is calculated by totaling all the expenditures incurred by qualifying residents of a country.  Taking cue from this, though informal yet conceptually right definition, any growth in GDP, if measured via the expenditure method, if not adjusted for prices, can give rather distorted figure about the growth story of GDP of a country. It may show a rise in consumption without making an allowance for inflationary tendencies. On the other hand, whereas a trend is concerned, an upward or downward movement in the GDP figures, measured via the expenditure method, can only indicate a statistical phenomenon which cannot be adjusted for inflationary tendencies.

Another difference between the two concepts is regarding their usefulness in forecasting. While GDP growth figures can be used for far more reliable forecasts, trends tend to lack a more reliable character.

All in all, the two concepts still find ample application in various economic phenomena due to their level of precision and reliability, buttressed by their easy availability. Further, they are also methods that are lesser prone to errors making them preferred choices for many researchers and economists.

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