Tuesday, June 9, 2015

Nepal earthquake caused gross value added loss of about $371 million in FY2015

The Central Bureau of Statistics released preliminary estimates of GDP growth for FY2015 (ends 15 July 2015). It provides data on pre-earthquake estimate of GDP growth (was supposed to be released on April 26, but it was delayed due to earthquake on April 25) and post-earthquake growth estimate based on the latest data.

It has projected GDP growth to decline by 1.5 percentage points to 3% in FY2015 due to the impact of the earthquake (considering two decimal points gives 1.54 percentage points decline!). Pre-earthquake growth estimate for FY2015 was 4.6%. The growth estimate is on the lower end of ADB’s earlier estimate, which said that growth could drop to as low as 3% if supply disruptions become more intense than initially anticipated. The 7.8 magnitude earthquake struck Nepal in the tenth month of fiscal year FY2015. Pre-earthquake estimate is based on 22 April forecast. Post-earthquake estimate is based on 8 June forecast.

GDP_NEPAL FY2014R FY2015 post-EQ FY2015 pre-EQ
GDP growth rate (basic prices) 5.1 3.0 4.6
Agriculture 2.9 1.9 2.3
Industry 6.2 2.7 4.6
Services 6.4 3.9 6.0
Composition of GDP (%)  
Agriculture 33.1 32.3 31.9
Industry 14.5 14.5 14.6
Services 52.4 53.2 53.5
GDP (current producers prices)  
GDP, NRs billion 1941.6 2124.7 2161.2
GDP, $ billion 19.8 21.6 21.9

Agriculture sector is expected to grow by 1.9%, industry by 2.7% and services by 3.9%. The sharp drop in agricultural output is primarily due to the negative impact of delayed and weak monsoon in the first half of FY2015, and later the loss of livestock due to the earthquake.

Meanwhile, the slowdown in industry sector is due to the drastic drop in quarrying (stones, aggregates, sand and soil extraction slowing down in affected districts, and the government’s policy to temporarily halt building activities till mid-July), manufacturing (physical damage, labor shortage and weak demand), and construction (policy to temporarily halt building activities, low corrugated sheet production, etc).

Services sector is affected heavily due to the slowdown in wholesale and retail trade, tourism activities (affects air transport, and hotels and restaurants businesses), and real estate, renting and business activities. Wholesale and retail trade grew by 9% in FY2014, but dropped to 3.4% after the earthquake (pre-earthquake growth 5.6%) in FY2015. This is primarily due to the slowdown in agricultural production and imports of goods after the earthquake. Hotels and restaurants suffered due to slowdown in tourist arrivals, physical damage to hotels and restaurants, and decline in domestic tourism. Furthermore, real estate activities were in line with the substantially lower land related transactions. There was also a substantial slowdown in renting business due to physical damage to buildings.

Overall, agricultural, industry and services sectors contributed 0.6, 0.4 and 2.1 percentage points to GDP growth of 3% (at basic prices). Nepal’s GDP is estimated to be $21.6 billion in FY2015 ($371 million less than what would have been in a no-earthquake scenario). Overall, gross output loss is estimated at $529 million in FY2015.

GDP_NEPAL ($, million) FY2014R FY2015 pre-EQ FY2015 post-EQ Losses
Gross output (basic prices)       29,092       31,953       31,424 529
Intermediate consumption       10,769       11,743       11,532 210
Gross value added (GDP)       19,770       21,948       21,577 371

FYI, gross output is the total value of all goods and services produced during the accountancy period (at basic prices). Intermediate consumption is the total value of goods and services consumed as inputs by production processes (at purchasers’ prices). Gross value added is the difference between gross output and intermediate consumption. Finally, GDP is equal to gross value added plus taxes minus subsidies.

The earthquake lowered per capita income by $23 compared to the no-earthquake scenario (when per capita income would have been $785). Accordingly, real per capita income increased by just 0.6% against 3.6% in no-earthquake scenario).

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