How does one calculate the real GDP growth rate?
In the U.S., the growth rate that the BEA reports is a quarter-on-quarter growth rate, which is the growth in real GDP from one quarter to the next, expressed as a percentage. The growth rate is expressed on an annual basis, so there are two steps to the calculation:
Step 1
First, we find the growth rate in real GDP on a quarterly basis, which is a straightforward percentage calculation that relates the change in GDP during the most recent quarter to the level of GDP in the quarter that preceded it:
g-quarterly (quarter on quarter GDP growth rate) = (GDPQ - GPPQ-1) / GPPQ-1
Where GDPQ refers to the level of GDP in quarter Q and GDPQ-1 is GDP in the previous quarter, Q-1.
Step 2
Let's refer to the rate we obtained in step 1 as g(quarterly) (sort of like the men's magazine). Remember, it's a quarterly rate and we're looking for an annual rate, so we annualize it using the following formula:
g-Annual = (1 + g-quarterly)^4 - 1
The annual rate is equivalent to the growth rate over a year if GDP kept growing at the same quarterly rate for three more quarters (or the same average rate).
Gross Domestic Product, First Quarter 2022 (Advance Estimate)
Real gross domestic product (GDP) decreased at an annual rate of 1.4 percent in the first quarter of 2022 (table 1), according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 6.9 percent.