Moving chain methodology reflects economic trends more accurately (Getty)

The Kingdom of Saudi Arabia has adopted a new methodology for measuring GDP known as moving series instead of the traditional approach based on a fixed base year.

  • The moving chain methodology aims to enhance the accuracy and reliability of economic indicators, as it allows a smooth transition between years. This reflects economic trends more accurately and clearly, and facilitates comparisons between countries.

  • Economic indicators are calculated in the moving series methodology by linking adjacent time periods together, and this continuous overlap ensures that changes in the economy are reflected more accurately, because it takes into account changes in production and consumption structures and the effects of price changes.

  • The moving chain methodology provides a more modern and realistic representation of economic activities, as it uses a reference year (2018) to link years together. This method provides a more dynamic and accurate representation by calculating relative changes between prices during adjacent years and not just one year.

Non-additive model

Moving series is a non-additive model, as the value of GDP cannot be obtained by summing its components from economic activities or expenditure items. The moving series methodology corrects the defects of the fixed base year, especially when the structure and economic behavior are subject to major transformations.

The moving chain approach allows for smoother transitions and adapts to evolving economic conditions. The moving chain approach not only considers changes in quantities, but also adjusts for differences in prices, providing a more realistic picture of economic growth or contraction.

Although moving series is a non-additive model, this methodology improves the accuracy and representativeness of the data.

It is economically accepted that there is a measure of the economy, whether it is measured by current prices, measured by fixed prices in the base year (2010), or measured by moving chains (reference year 2018).

The General Authority for Statistics adopts the moving chains methodology in calculating the real GDP, and the Kingdom is the first country in the Gulf and Arab countries to adopt the moving chains methodology. https://t.co/jlsZGUgorl #Sass_Economic pic.twitter.com/dJzPclGQvE

- SPA Economic (@SPAeconomic) March 10, 2024

Measured by current prices

Measurement by current prices is one of the pillars of national accounts, as it reflects the monetary value of all goods and services produced within the economy during a specific period, without any adjustment for changes in prices or inflation. It gives a perception of the total added value in terms of the actual prices prevailing in the market at the time of production. .

In other words, measuring in current prices reflects gross value added without considering the effect of inflationary or deflationary pressures.

In the context of national accounts, this measurement provides an overview of economic activity and the total income generated by various sectors, and serves as the starting point for further analysis. It also helps decision-makers, economists, and public stakeholders measure the size and growth of the economy.

#Statistics adopts the moving chain methodology in calculating the GDP https://t.co/s4LgWmxZQh #Al-Madina_Newspaper pic.twitter.com/eDz9Wv96MO

- Al-Madina Newspaper (@Almadinanews) March 10, 2024

Base year methodology

In the fixed base year methodology, 2010 is considered the base year, and all other years are compared to it, in order to provide a more accurate reflection of the real growth of the economy by removing the effect of price fluctuations.

Although this methodology has been used for many years and in an effective manner, it does not reflect changes in economic structures and behaviors over time well. When goods and services are produced, the total value is measured in monetary value (i.e., in current prices), and during the comparison between years we will notice a noticeable decrease and rise. In total values, which may be a reflection of price changes rather than the real change in the quantities of goods and services produced.

Saudi Arabia is the first country in the Gulf and Arab countries, and among the majority of the G20 countries, to have adopted the moving chain methodology.

Statisticians who are experts in the field of national accounts have shown that the moving chain methodology takes into account the impact of price changes and the flexibility of dealing with economic activities. It also takes into account the structure of production and consumption patterns, and allows for clearer international comparisons.

The Saudi General Authority for Statistics recently revealed that the gross domestic product decreased by 4.3% during the fourth quarter of 2023 compared to the same quarter in 2022, and compared to the third quarter of 2023, the seasonally adjusted gross domestic product witnessed a decline of 0.6%.

The gross domestic product reached 891.38 billion riyals (the dollar is 3.75 riyals) during the fourth quarter of 2023, compared to about 931.28 billion riyals during the same period in 2022.

Source: Al Jazeera + Saudi Press