GDP Growth Rate Calculator
What is the GDP Growth Rate?
The Gross Domestic Product (GDP) growth rate measures how fast an economy is growing. It does this by comparing the country's economic output in one period to another. Most commonly, economists track the annual growth rate of the Real GDP to understand the health of a nation's economy.
A positive growth rate indicates economic expansion, often leading to more jobs and higher incomes. A negative growth rate indicates economic contraction, which, if sustained over two consecutive quarters, is often defined as a recession.
The GDP Growth Rate Formula
To calculate the GDP growth rate manually, you use the following percentage change formula:
How to Calculate GDP Rate: Step-by-Step
- Find Previous GDP: Locate the GDP figure for the base period (e.g., last year).
- Find Current GDP: Locate the GDP figure for the most recent period.
- Subtract: Subtract the previous GDP from the current GDP to find the absolute change.
- Divide: Divide that change by the previous GDP value.
- Convert to Percent: Multiply the result by 100 to get the percentage growth rate.
Real Example of GDP Calculation
Imagine a country had a Real GDP of 500 billion last year and 525 billion this year.
- Step 1: 525 – 500 = 25 (The economy grew by 25 billion)
- Step 2: 25 / 500 = 0.05
- Step 3: 0.05 x 100 = 5%
The GDP growth rate for that country is 5%.
Real GDP vs. Nominal GDP
When calculating growth rates for long-term trends, it is crucial to use Real GDP. Nominal GDP includes price increases (inflation), which can make an economy look like it's growing when it's actually just getting more expensive. Real GDP adjusts for inflation, showing the true increase in the volume of goods and services produced.