Gross domestic product

What it means

GDP, gross domestic product, is the total value of goods and services produced in a country over a period, usually a quarter or a year. It is the most important measure of economic performance, and its growth or decline shows how the country is doing.

There is nominal GDP at current prices and real GDP adjusted for inflation, which shows actual growth in output. To compare living standards between countries, GDP per capita in purchasing power parity is used.

Two consecutive quarters of falling real GDP are often called a technical recession. Key public finance indicators are also tied to GDP: the deficit and public debt are expressed as a percentage of GDP and used to assess compliance with fiscal rules.

How it works in practice

GDP trends affect demand for goods and services, wages, employment and state tax revenue. Businesses watch them when planning sales and investment: in a period of growth it pays to expand capacity, while in a slowdown it is better to save and strengthen liquidity.

Central bank interest rate decisions and government fiscal policy also respond to GDP. An economic slowdown can lead to lower rates and support measures, while overheating can lead to higher rates and budget consolidation.

In Slovakia, the Statistical Office publishes GDP estimates, first a flash estimate and later refined figures. Forecasts are prepared by the finance ministry, the National Bank of Slovakia and international institutions, and companies use them as input for their own plans.

What to watch out for

GDP does not measure everything: it ignores income distribution, environmental quality and unpaid household work. GDP growth therefore does not automatically mean life is improving for everyone, and other indicators are used to assess the economy as well.

First GDP estimates are often revised significantly. For decisions, it is better to follow the trend and several sources than to react to a single quarterly figure that may change later.