COMPARATIVE ANALYSIS OF THE DEVELOPMENT OF THE GROSS DOMESTIC PRODUCT IN THE MEMBER STATES OF THE EUROPEAN UNION Prof. Constantin ANGHELACHE PhD (actincon@yahoo.com) Bucharest University of Economic Studies / Artifex University of Bucharest Abstract This article, based on the study, highlights the evolution of Gross Domestic Product in each member country of the European Union as well as in all the EU countries. On the basis of the data provided by Eurostat and the National Institute of Statistics, the level of the Member States was compared. Gross Domestic Product is the most comprehensive indicator of results that is calculated using the same methodology in all EU countries. Based on the National Accounts Record system, being defl ated and expressed in euro, Gross Domestic Product expresses appropriate comparability. Also, by calculating gross domestic product per capita and purchasing power parity, indicators are obtained which ensure not only the comparability in terms of size of development but also the level of living, the level of quality of life in the states subject to control. In this study, structural comparability of GDP was also assessed after assessing the state of economic development in each country. The article is accompanied by signifi cant graphs, which highlight the conclusions drawn by the author. Keywords: Gross Domestic Product, resource, use, growth, net exports, comparability JEL Classification: E60, O40 Introduction In this study, the author made a concrete analysis of the state of economic development of the Member States of the European Union. After clarifying the theoretical aspects used in the paper, on the basis of concrete data, the comparability of the Member States is achieved. The macroeconomic indicator of results is used, calculated similarly in all EU countries, derived from gross domestic product per capita and purchasing power parity. The data, having the same source and obtained by the same methodology, are relevant in the opinions (the author s opinion. Revista Română de Statistică - Supliment nr. 8 / 2018 119
Comparability refers to a period of time and is also carried out on a structural basis. Thus, GDP is analyzed by resources and uses, showing in each country the contribution of each resource differently from one state to another. Regarding the uses, we also draw conclusions about the sources of investment or consumption. These limits also highlight the limits for investment and, consequently, those on the pace and prospect of the development of the Member States of the European Union. The article is illustrated with suggestive charts that provide a better interpretation of the data used. Literature review Anghelache, Marinescu, Avram and Dumitru (2018), and Anghelache, Anghel and Stoica (2017) conducted a study of the evolution of the Gross Domestic Product in Romania. Anghelache (2017) conducted a broad analysis of the evolution of the Romanian economy and, implicitly, the level of GDP. Anghelache and Anghel (2017) used the econometric tools to study factorial influence on GDP growth. Anghelache, Partaki, Sacala and Ursache (2016) investigated the correlation between GDP and foreign direct investment. Anghelache and Sacala (2016) studied the link between GDP and gross income. A similar theme is dealt with by Chamberlin (2011). Bhandari and Frankel (2015), as well as Garin, Lester and Sims (2016), addressed a number of issues related to nominal GDP. Censolo and Colombo (2008) analyzed the structure of public consumption. Michelis and Monfort (2008) and Koulakiotis, Lyroudi and Papasyriopoulos (2012) discussed gross domestic product in European countries. Maza, Hierro and Villaverde (2012) analyzed the role of space in revenue distribution in European regions.. Methodology, data, results and discussions From the analysis of the data it can be seen that the GDP at the level of the European Union experienced a training in 2008, and in 2009 there was a considerable decrease, this decrease being the result of the global economic and financial crisis. In 2010, however, at the level of EU Member States, there is a recovery in the level of the indicator under review. Behind the lack of rapidity, the positive trend continued, going beyond the 2011-2013 period, followed by a faster pace of growth in 2014, when the value of the Gross Domestic Product in the European Union was 13.9 trillion Euro, up by more than 6.2% higher than the United States (Figure 1). 120 Romanian Statistical Review - Supplement nr. 8 / 2018
The evolution of GDP in current prices in the period 2004-2014 (EUR billions) Figure no. 1 Source:EUROSTAT (http://ec.europa.eu/eurostat/statistics-explained/index.php/national_accounts_and_gdp/ro) For the purposes of assessing the standard of living, the most appropriate is the use of GDP per capita expressed in the SPC (purchasing power standard), this indicator being adjusted according to the size of the population of a state, but also by the differences in terms of prices. The position of each state can be expressed, comparing with the average of the 28 EU Member States, set at 100. When the index per country is more than 100, the Gross Domestic Product per capita for that state is below the EU-28 average, and vice versa, if higher then it is above the EU-28 average. It is worth mentioning that it is recommended to use this index to perform comparative analyzes between countries, rather than in time comparisons. Thus, in 2013, GDP per capita in the EU averaged 26,700 SPCs, slightly above the highest value (26,000 SPPs) achieved in 2008, even before the negative effects of the economic and financial crisis hit their mark. According to Eurostat data on Gross Domestic Product per capita for the period 2004-2015, at country level in 2013, the highest GDP per capita in the SPC was recorded of Luxembourg, higher than the EU-28 average of about 2.6 times. An explanation for this may be the fact that a relatively large number of citizens coming from Germany, France and Belgium went to work in Luxembourg, which in 2015 still had the highest Revista Română de Statistică - Supliment nr. 8 / 2018 121
GDP per capita ( 91.600 EUR). At the other extreme, Bulgaria has GDP per capita below half the EU-28 average since 2013, maintaining this situation in 2014 and 2015. Dynamics of purchasing power at European level for the years 2014-2015 Figure no. 2 Own representation based on data processing published by EUROSTAT By comparing this indicator with the country s evolution, we find that by joining the European Union in 2004, 2007 or 2013, Member States have come close to the EU-28 average, even if this growth has been affected by the economic crisis. In 2003, Romania, Lithuania, Estonia, Poland, Slovakia, Latvia and Bulgaria were at the EU-28 average by the EU-28 average by 2015. It is not can say the same for Greece, which recorded a significant drop in the EU-28 average during that period (2003-2013), followed by Slovenia and Cyprus but to a lesser extent. Like Romania, Hungary and Poland are countries that have encountered many obstacles over time. However, the quantitative increase in the GDP indicator shows that they have improved their activity. Thus, the economic position of Hungary and Poland shows a clear improvement in 2015 compared to the previous year. The best dynamics for that period were recorded by Luxembourg, Austria and Germany, and in 2015 the first places were occupied by Luxembourg, followed by Denmark and Ireland. The severe recession generated by the global economic crisis has had an impact first on the United States and then on Europe. As shown in figure 3, GDP growth in the US and the EU has already prefigured the spectrum of the 2008 economic and financial crisis. The critical 122 Romanian Statistical Review - Supplement nr. 8 / 2018
point was reached in 2009, when real GDP in the EU-28 declined by 4, 4%, and in America there was a 2.8% drop. In 2010, there is a recovery and an EU-28 GDP growth of 2.1% is observed, this trend also being maintained in 2011, when GDP in the EU 28 reaches a share of growth of 1.7%. Year 2012 brings about a 0.5% drop and only in 2014 comes a growth rebound (1.3%). The United States of America has recovered more easily, unlike the European Union, with a growth rate of over 2% between 2012 and 2014. Evolution of GDP in real prices over the period 2004-2014 (percentage changes compared to the previous year) Figure no. 3 Source: EUROSTAT By calculating the annual growth rate of the Gross Domestic Product volume, it is possible to compare the dynamics of economic evolution over time periods but also between economies that can be at different levels, thus highlighting the percentage change compared to the previous year. Regarding real GDP growth in the European Union, we note that there have been appreciable changes in both member states and in time (Figure 4). In 2009, as evidenced by the most recent data from Eurostat, there is a decline in real GDP in the Member States of the European Union, with the exception of Poland. The year 2010 comes with a recovery in economic growth for 22 Member States and in 2011 the same trend is evident, the number of Member States showing real GDP growth reaching 24. The year 2012 showed a reversal of this developments since nearly half of the Member States recorded economic growth, reaching 17 in 2013, so that in 2014 the number of Member Revista Română de Statistică - Supliment nr. 8 / 2018 123
States with economic growth will increase. So, in 2014, the highest real GDP growth rates were recorded by Ireland (5.2%), Hungary and Malta (3.7%) followed by Poland (3.3%) and Romania, Slovenia and Lithuania recorded the same percentage of 3%. The 1.5% increase in Bulgaria was slightly above the EU-28 average of 1.4%. Spain s growth in 2014 (1.4%) was the first annual growth of the Spanish economy since 2008. Modification of the Gross Domestic Product at European level in the period 2003-2015 Figure no. 4 Data source: EUROSTAT In Portugal, the real GDP growth rate was 0.9%, the first increase since 2008, and for Greece (0.7%) the first increase since 2007. Cyprus, Italy and Finland have scored three consecutive declines, and Croatia s economy has for the sixth time a real GDP decline. In 2014, the real GDP decline recorded by the four EU countries mentioned above was about a small one. The exception is the economy of Cyprus, which had a real GDP fall of 2.5%. From the analysis of 2015 data, we note that there have been noticable increases in real GDP: Ireland (7.8%), Malta (6.3%) and Luxembourg (4.8%). However, modest increases are seen in the two Member States - the so-called engines at the political and economic level of the European Union: Germany (1.7%) and France (1.2%), see figure no. 4. Compared with the results of the end of 2014, in the analysis of GDP dynamics, we find that among the former communist countries, Romania had an economic growth of 6.7%, followed by Hungary by 4.3%, Poland by 4.1%, Latvia with a percentage increase of 3.4%, Slovakia and Bulgaria, which were about the same percentage increase of about 3%. 124 Romanian Statistical Review - Supplement nr. 8 / 2018
According to Eurostat s projected results for the end of 2015, Romania s economic growth is among the highest in the EU, the main challenge for our country is to ensure a balanced but sustainable growth in the future. Changing Gross Domestic Product by resource category During the analyzed period, the contribution of the factors to the GDP change was not similar due to the way in which the gross added value was achieved in each economic branch. By analyzing the Gross Domestic Product for the period 2004-2014, a clear picture is emerging as to the gross added value of some economic branches in the European Union (Figures 5 and 6). Thus, the share of value added for industry decreased by 1.2%, reaching 19.1%, followed by transport, services related to commercial distribution, as well as accommodation and public catering, decreased by 0.7% to 19.0%. Education and health, and public administration increased by 1.0% in 2013, marking the value of 19.4% and thus becoming the most important value-added activity. In the same year, value added and real estate services (11.2%), professional, technical, scientific, administrative and support (10.4%), construction (5.7% and insurance (5.5%) and communication and information services (4.5%). The lowest contribution came from entertainment and other services (3.6%) and from agriculture, fisheries and forestry (1.7%). Evolution of the gross average gross value added in the EU-28 for the period 2004-2014 Figure no. 5 Source: Eurostat Compared to 2003 (71.5%), in 2013 services accounted for 73.6% of the total gross value added of the European Union. Revista Română de Statistică - Supliment nr. 8 / 2018 125
More than 75% of the total value added was recorded in Luxembourg, Cyprus, Malta, England, Denmark, France, Greece and Belgium, see figure no. 6. The negative effects of the crisis have been felt in several sectors, including the industry which declined between 2007 and 2009 by 12.6% in the EU-28, and between 2011 and 2013 there was a decline of 1, 2 %. The most significant reduction was registered by constructions, which had a decrease of 18.4% between 2007 and 2013 and in 2014 marks the first increase (0.7%) in the year of the year. Transport, distribution services declined significantly in 2009 (7.1%), while those in public catering and accommodation decreased by 6.0%. Agriculture also declined by 4.2% in 2012 after declining by 3.1% in 2010. Average gross value added in the EU-28 for the period 2004-2014 Figure no. 6 Source: Eurostat Compared to 2013, in 2014 almost all economic activities have seen higher or lower increases. Thus, the lowest growth, of 0.1%, was in the financial and insurance field. On the opposite side, with the most pronounced growth, there was agriculture with an increase of 2.8%, followed by services for companies by 2.5% and those in the field of commercial distribution, transportation and catering and accommodation with an increase of 2.1%. 126 Romanian Statistical Review - Supplement nr. 8 / 2018
Developments in GDP in uses in the EU member countries We will continue to analyze the structure of the Gross Domestic Product by highlighting the categories of uses, reporting to the Member States of the European Union and dealing in turn the aggregated components as follows: private consumption, public consumption, gross capital formation and exports. Analyzing in terms of expenditures the evolution of the GDP components in the period 2004-2014, we find that the expenditures related to the final consumption had an increase of 9.0% in the European Union. Concerning the expenditures related to the final consumption in public administration, they recorded a faster evolution, registering an increase of 13.0% over the same period, see figure no. 7. Evolution of consumer spending and gross capital formation at constant prices in the EU-28 member countries during the period 2004-2014 Figure no. 7 Source: Eurostat In 2010, household consumption expenditure and non-profit institutions increased by 0.8% after a decrease in 2009, continuing to increase by 0.3% in 2011. In 2012 and 2013 there was a further decrease of -0.7% and -0.1%, respectively, but in 2014, spending increases by 1.3%, marking the highest growth since 2007. Consumption expenditures for non-profit institutions and households contributed to EU GDP of 56.9% in 2014. Concerning the contribution of the expenditures related to the general government, we mention that they registered a share of 20.9% and the gross capital formation contributed by 19.3%, see figure no. 8. Revista Română de Statistică - Supliment nr. 8 / 2018 127
Structure of GDP expenditure in EU-28 from 2015 (% of GDP) Figure no. 8 Source: EUROSTAT Also, in this analysis, we will highlight the existence of regional disparities in terms of the share of uses in the Gross Domestic Product. To observe evolving trends, we adopted a comparative approach to the results achieved in the late 2014s and 2015s. With the aim of economic growth, EU Member States consider consumption as one of the engines for growth. And Romania is among those countries that see in stimulating the growth of consumption, a solution by which the economy will register economic growth, this aspect being also highlighted in the EUROSTAT statistical publications. However, some economists in our country claim that economic growth, which is based on consumption, would not be sustainable over the long term. They also point out that if consumption were to be based on products made in the country, then we would have more economic growth and a healthy economy. Thus, if we analyze the data reported by this body dealing with EU statistics (Figure 9), we find that our country is in the top of the EU member states with significant weight in the GDP of private consumption, although the pace of growth slowed down in 2015, which is true for most EU Member States. One of the main elements of Romanian economic growth, private consumption, marked a 0.3% increase in 2015 compared to 2014. The largest increase in the share of private consumption in GDP was registered by Lithuania by 1.2%, followed by Estonia by 1.1% and Denmark (Latvia) and the United Kingdom (0.2%). 128 Romanian Statistical Review - Supplement nr. 8 / 2018
The share of private consumption in GDP at the level of the European Union in the years 2014 and 2015 Figure no. 9 Data source: EUROSTAT (http://appsso.eurostat.ec.europa.eu/nui/submitviewtableaction.do) Although there is a significant share of household consumption in GDP, there are EU Member States with decreases such as Greece (-0.1%) and Cyprus, with the largest share of GDP in private consumption (69.3%)., which marks a decrease of -0.2% in 2015 compared to the previous year. One worthy point to be mentioned is the large gap between Luxembourg and the other EU Member States. Although Luxembourg held the smallest share of private consumption in GDP (29.6%) in 2014, we see a -1.8% reduction by the end of 2015. If we look at the situation of other Central and Eastern European states and we compare with the situation of 2014, we can say that Romania is in favor of a 0.3% growth in 2015, unlike Slovenia (-1.4%)., Poland (-1.3%), Hungary (-0.7%) and Slovakia (-0.6%). The largest decrease was registered by Bulgaria, which, although having a significant share of household consumption in GDP, marks a -2% decrease in 2015 compared to 2014 when it has a weight of 62.4% of GDP. Going forward with this analysis and looking at the general government expenditure at the level of the European Union (Figure 10), we find that the growth rate for this category of expenditures had a decrease of the volume in 2010, remaining in the period (2011-2012) at an approximately stable level (between 0.3% and -0.2%). However, 2014 brings a more pronounced 1% increase in government spending within the European Union. At the same time, we find that, unlike the share of private consumption in GDP at EU level, the gaps between regions are not as pronounced when it Revista Română de Statistică - Supliment nr. 8 / 2018 129
comes to public consumption. The EU Member States with the largest share of government GDP expenditure and above the EU average of 2015 (20.6%) are Denmark (26.2%), Sweden (26.1%), the Netherlands ( 25.3%), followed by Finland with 24.6% and Belgium (24.2%). Declining by 0.4% compared to 2014, at the national level, the share of GDP in government expenditure is 13.5% in 2015. There are also small declines in Slovenia (18.5%) and in Hungary, which is 20.9% in 2015 compared to 2014 when this percentage was 0.3% higher. We also note that Bulgaria s share of state expenditure in GDP is 16.3% in 2015, down 0.2% from the previous year. The share of public consumption in GDP at the level of the European Union in the years 2014 and 2015 Figure no. 10 Data source: EUROSTAT (http://appsso.eurostat.ec.europa.eu/nui/submitviewtableaction.do) We continue the analysis, pointing to gross capital formation, and we specify that between 2004 and 2014, at the level of the European Union, it decreased by 1.8%, mainly due to the major reductions that existed in 2009, 2012 and 2013. Import growth has also been overtaken by exports lately. Contrary to the fact that in 2011 there was a 2.0% increase in gross fixed capital formation, there was no overall recovery after the dramatic decrease in 2009, when there was a decrease of -11.9%, returning to a negative variation rate in the years 2012 and 2013, as stated in EUROSTAT publications. In 2014, this indicator shows an increase of 2.3% (in real terms), being the highest recorded since 2007. 130 Romanian Statistical Review - Supplement nr. 8 / 2018
Between EU Member States, there were considerable differences in the intensity of global investment, and this may represent, on the one hand, the dynamics of the growth that has taken place in recent years, but also the different stages of economic development for each between Member States. Gross capital formation (Figure 11) represented 19.6% of GDP at EU-28 level in 2015 and 19.8% at euro area level (ZE-19). According to data provided by EUROSTAT, countries with the highest percentage of GDP include the Czech Republic (25.8%), Estonia and Sweden by 24.2%. At national level, GDP growth in gross capital formation increased by 0.5% in 2015 compared to the previous year, when it accounted for 24.2% of GDP. Gross fixed capital formation at European level during 2013-2015 Figure no. 11 Data source: EUROSTAT The lowest level in 2015 was reached by Greece, which recorded a volume of 20.519 million euros, representing 11.7% of GDP and Cyprus (13.4%). Although slightly higher than in the previous year, the evolution of this indicator in the case of Greece reflects an uncertain situation and an unstable business environment, with the economic and financial crisis putting a strong footprint on its economy. The investment situation in Romania is almost stable, with many possibilities for improvement if we look at the economic growth recorded in 2015. From the point of view of the FBCF dynamics, in 2015, there is an increase of 26.6% compared to 2009 when the gross capital volume decreased Revista Română de Statistică - Supliment nr. 8 / 2018 131
to 31.297 million euros. It is worth mentioning that the gap between our country and the Czech Republic in 2009 diminished, Romania reaching a level of gross capital formation of 39.631 million euros in 2015, standing in the immediate position next to the Czech state. Thus, in 2009, the Czech Republic recorded a gross capital volume of EUR 40,230 million and the volume registered by Romania. The share of FBCF in GDP outlines the impact of this indicator on economic growth, highlighting the growth policy adopted by many European countries, such as those that have as their basis the attraction of capital or the increase in consumption. According to the presented, in terms of the values recorded by the main indicators at the macroeconomic level, the situation of our country indicates a slight improvement and the correlation between the GDP growth and the evolution of investments describes a stable economic growth, however, in order to even sustainable, the government of our country should implement measures to make this possible. An example of this would be to take steps to eliminate bureaucracy, create a stable fiscal and legal framework, improve infrastructure, etc. The macroeconomic stability highlighted in recent years in Romania is fundamental to the sustainable development of our country and highlights the substantial growth of the Gross Domestic Product. This growth was mainly based on exports and investment. The European Commission analyzes annually the competitive position of each EU Member State with the help of several indicators and one of the key indicators for assessing the competitive performance of the Member States is exports. Exports are an important factor in the growth of a country s economy and their weight in GDP reflects the degree of openness of the economy of a state. Thus, from the analysis of the results obtained by our country, we note that the share of exports of services and goods shows an upward trend in recent years. In 2014, the highest value is achieved in the last 5 years (41.2%), indicating a positive influence for the development of the national economy and in 2015 there is a decrease of 0.1% compared to the previous year. By comparing the results obtained by Romania and other EU Member States, we find that the neighboring country, Bulgaria, has a share of exports to GDP of 66.5%, up 1.4% year-on-year, by our country and also above the EU average, see figure no. 12. 132 Romanian Statistical Review - Supplement nr. 8 / 2018
Share of exports of goods and services to GDP at European level in 2014 and 2015 Figure no. 12 Data source: EUROSTAT (http://appsso.eurostat.ec.europa.eu/nui/submitviewtableaction.do) The largest share of exports in GDP in 2015 was registered by Luxembourg with a 5 times higher share compared to the EU average. Hungary is also up by 92.1%, followed by the Czech Republic (84.5%) and Poland at 49.4%. Conclusion From the study, a series of theoretical and practical conclusions are drawn. Thus, the usefulness and effectiveness of the Gross Domestic Product indicator is used in the use for comparability of the level of development of the Member States of the European Union. Data sources offer the possibility of extending the European and, more broadly, international comparability analysis. Structural analysis, by resources and uses, highlights the peculiarities of each country and expresses the capacity for economic growth in each case. The figures used have highlighted the state of the economic situation in each country and show the future growth potential of both the Member States and the European Union. The study by resources, the structure of expenditures and income shows the stage of evolution and, by comparing GDP per capita, the living standard (quality of life) is also highlighted. The final conclusion that can be drawn from this paper is that the analysis can be extended by the use of macroeconomic models. Revista Română de Statistică - Supliment nr. 8 / 2018 133
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