What this calculator does
A headline growth figure is the change in GDP between two periods as a percentage of the earlier one. On its own that is a nominal figure, meaning it includes the effect of prices rising as well as any actual increase in output.
Two adjustments turn it into something more meaningful. Removing inflation gives real growth, which is the change in what was actually produced. Removing population growth on top of that gives growth per person, which is the figure most closely related to whether individuals are better off.
The formula
Nominal growth is the change in GDP divided by the earlier GDP. Real growth divides the nominal growth factor by the inflation factor rather than simply subtracting, since both are compounding rates. Growth per person applies the same division again using population growth.
| Term | Meaning |
|---|---|
| Nominal GDP | Output measured at the prices of the period it was produced in, so it rises when prices rise even if nothing more was made. |
| Real growth | Growth with the effect of price changes removed, describing the change in the quantity of output. |
| Growth per person | Real growth adjusted for population change, which is what determines whether average output per person rose or fell. |
The inputs explained
| Field | What to enter |
|---|---|
| GDP, earlier period ($bn) | GDP in the earlier period, in any consistent unit. |
| GDP, later period ($bn) | GDP in the later period, in the same unit as the earlier figure. |
| Inflation over the period (%) | The inflation rate over the same period, used to convert nominal growth into real growth. |
| Population growth over the period (%) | Population growth over the same period, used to convert real growth into growth per person. |
When to use it
Reading a growth headline properly
A reported figure may be nominal or real, and the two can differ by several percentage points. Running both through the same calculation shows how much of the headline is prices rather than output.
Comparing two countries
Countries with different inflation and different population growth are not comparable on nominal GDP growth alone. Growth per person puts them on a more even footing.
Checking whether growth kept up with population
An economy can grow in total while shrinking per person, which happens whenever population growth outpaces real growth.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
How does 4.5 per cent nominal growth look at different inflation rates?
The same nominal growth figure, adjusted for a range of inflation rates.
| Inflation | Real growth (after inflation) | Real growth per person |
|---|---|---|
| 0% | 4.50% | 3.26% |
| 1% | 3.47% | 2.24% |
| 2.5% | 1.95% | 0.742% |
| 4% | 0.481% | -0.711% |
| 6% | -1.42% | -2.58% |
Questions
Why divide by the inflation factor rather than subtract it?
Both figures are rates of change compounding over the same period, so the correct adjustment divides one growth factor by the other. Subtracting is a common approximation that is close at low rates and drifts as the rates rise.
Which figure do economists usually quote?
Real GDP growth is the standard headline, because nominal growth mixes output and prices. Growth per capita is quoted when the question is about living standards rather than the size of the economy.
Can real growth be negative while nominal growth is positive?
Yes, and it is common during periods of high inflation. If prices rise faster than output, the economy produced less in real terms even though the money value of what it produced went up.
What period should the rates cover?
All three inputs must cover the same span. Mixing an annual inflation figure with a quarterly GDP change produces a meaningless result, so convert everything to a common period first.
For the compounding arithmetic behind the adjustment, see the inflation calculator. For a plain change between two figures, see the percentage change calculator.