Now: nominal is growth with inflation, real GDP is growth without inflation. Governments like nominal GDP to be higher than real GDP because it allows their revenues to rise faster than outlays; “fiscal drag” happens under high nominal GDP.
What happens when real GDP is higher than nominal GDP? Not much in the real world — but it does mean tougher budgets for federal, state and local governments.
So memo to Joe: there’s a simple reason. The national accounts showed the two main measures of inflation remained low. The implicit price deflator for household consumption rose 0.5% in the December quarter to be 2.4% over 2012. The GDP deflator — a broad measure of prices received by producers — fell 0.1% per cent last quarter to be 1.1% lower over the past year. This slowed growth in nominal GDP. That’s the strong dollar exerting downward pressure on prices and costs. And the smaller rise in nominal GDP underlines the strength of GDP growth in the economy because more of it came from higher demand than from inflation, which is surely a good thing — at least if you don’t have a government budget to run.
Thursday, 7 March 2013
How did predictions for the 2012 Australian economy do?
Not so good actually. Glenn Dyer and Bernard Keane Mythbusting the great economic claims of 2012. They also explain the difference between nominal GDP and real GDP: