Annual national accounts (2005 Base)
The origins of the national accounts date back to the interwar period: the aim at that time was to construct an index that would give an evaluation of the wealth produced each year and show how it was developing. In France, the national accounts developed much more in the 1950s, to cope with national requirements for planning and economic budgets.
What we now call the GDP (gross domestic product) can be evaluated in 3 ways: by taking the sum of produced goods and the resulting value added (production approach), by taking the sum of their uses (demand approach), or by adding incomes together (income approach). However, the practical difficulties encountered when trying to reconcile these three approaches meant that it quickly became necessary to look for consistency at a much finer level of detail.
The national accounts describe resources and uses at a very fine level of detail for each type of good or service. To be used in the accounts, a good (or service) must have been produced or imported. Production is the main source of income: it refers both to human activity which enables goods to be manufactured or services to be provided and the result of this activity.
However, the field also has to be specified; a good or a service that has been produced can then be sold for export, consumed, invested, stored, destroyed or incorporated into the production process of another good or service. Some products are invested, stored or consumed by their producer; if products of the same nature give rise to exchanges, then this production and these uses are of interest to national accounts. Lastly, national accounts are interested in the production of public services (defence, justice) where use cannot be divided between various actors.
National accounts classify the various protagonists of economic life into institutional sectors and describe their activities and interrelationships. In concrete terms, the resident units, i.e. actors whose main activity is carried out within the economic territory, are grouped together into institutional sectors: Non-financial companies, Households, General government, etc.
By combining successive accounts, the integrated economic accounts (TEE) describe production in each sector, the value added generated, income distribution, redistributions operated by taxation and transfers, distribution of disposable income between consumption and savings, net lending or net borrowing resulting from the difference between savings and direct investment, and changes in assets which are the result of savings and changes in the price of assets. An the Rest of the world account, from the standpoint of the Rest of the world, registers operations between resident units and those outside the economic territory.
All values in national accounts are evaluated "in value", i.e. in euros at the current rate. Exchanges are evaluated using prices that are actually charged. However, the price received by the producer is not the same as that paid by the purchaser; to pass from one to the other, the good (or service) has to be transported and marketed by intermediaries who take off profit. They are usually subject to tax on these products (e.g. VAT, domestic duty on petroleum products (TIPP)) and sometimes receive subsidies.
All these operations must be taken into account when the resources-uses balance is described for a good (or service), i.e. the value balance for the production of this good and exchanges related to it. When produced goods or services are not exchanged, they are valued at the prices paid for exchanges relating to goods or services of the same nature.
When there are no exchanges for these goods, then production costs are often used by default. Furthermore, indirect methods are used to evaluate certain services that are actually produced and consumed but which are not invoiced as such (indirectly measured financial intermediation services (SIFIM), and insurance).
The evolution GDP in current prices does not provide sufficient information in itself; in order to evaluate the growth of the economy, the only growth rate that really counts is the one based on the "in volume" GDP. To obtain it, the impact of price variations must first be removed. When a single good of consistent quality is considered (e.g. aluminium), production or consumption can be measured directly as a quantity (in this case in tonnes) and it is relatively simple to attribute prices and volumes in the value trends from one year to the next.
When it comes to a complex good (e.g. an automobile), the principle consists in evaluating what the growth rate would have been if prices had remained unchanged. However, variations in base year prices that remain fixed are less and less relevant the further away one moves from it; they give too much importance to goods whose relative prices tend to decrease, such as computer equipment, to the detriment of goods whose relative prices increase (certain services), and this bias worsens over time.
Adjusting the base every five years can considerably reduce the disadvantages of a fixed price base. Since the accounts are all the more reliable the more often the base year is changed, why not change it every year? This is the solution chosen for European Union countries in the framework of the European System of Accounts (ESA95) and which France has applied since base year 1995. The annual accounts are therefore published "chain-linked, in volume": the principle consists of chaining year after year, changes in volume according to the prices of the previous year based on the values for the base year.
Although comparisons of actual changes can be made when using accounts in volume, it is not possible to directly compare GDP and standards of living between countries. To do this, it is necessary to compare prices directly between countries then calculate aggregates according to a common price system; this is the method known as purchasing power parity (PPP). This work is coordinated by Eurostat for the European Union, and has given rise to new requirements in harmonising working methods.
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Synthesis
Annual