Gross capital formation

Gross capital formation (P5) includes:

Gross fixed capital formation

Gross fixed capital formation (GFCF) is the balance between acquisitions and sales of fixed assets by resident economic units in the course of the reference period. Fixed assets are produced tangible or intangible assets (however, this distinction is no more visible in SEC 2010 assets classification) used in a production process for at least one year. These assets may be purchased, produced on own account, received as capital transfers, or acquired in the framework of a leasing contract.

They may be tangible fixed assets acquired new or second-hand, such as - dwellings, other buildings and civil engineering works, machinesincluding transport equipment, and weapon systems. Major improvements made to existing fixed assets and to non-produced assets such as land are also considered as GFCF. For example, extensive work to maintain buildings and prolong their life is counted as GFCF. However, everyday maintenance of dwellings is part of final household consumption and that of commercial buildings is an intermediate consumption of the companies in question. The costs related to the transfer of ownership of produced and non-produced assets (notary's and estate agent's fees, duties, ownership transfer taxes) are included in GFCF.

GFCF also includes acquisitions of intangible fixed assets. The scope of such assets includes software, original literary and artistic works, mining or oil exploration expenditure and research and development. The infrastructures and facilities acquired by the armed forces are part of GFCF when they are likely to be used for non-military purposes (airports, roads, port facilities, hospitals, means of transport, etc.).

Lastly, GFCF includes cultivated biological resources: livestock used in a production process (dairy cattle, for example), and plants yielding repeat products (vines, fruit trees).

Almost half of the overall GFCF of the economy is made up of buildings or civil engineering structures. The GFCF of households – excluding sole proprietorships – is only destined for their housing; the other durable goods purchased by households are counted in their final consumption expenditure.

The notion of GFCF is more restrictive than that of investment as used in economics or in everyday language. The term investment usually describes investment in production, most of which corresponds to GFCF (machines and buildings), but which is sometimes extended to non-produced assets such as the land on which industrial buildings and dwellings are located. It is also used to describe financial investments; this is the case of foreign direct investment.

Moment of recording and evaluation of GFCF

GFCF is recorded at the moment when ownership of the assets in question is transferred. Goods acquired through a leasing contract are recorded when the user takes possession of them (transfer of economic ownership). Construction works are recorded as the purchaser's GFCF as and when they are produced, when they are produced on own account, and when they are covered by an advance sale contract. The same goes for cultivated assets produced on own account.

GFCF is evaluated at the purchase price, which includes installation costs and the costs related to transfer of ownership. Sales of assets are evaluated at the sale price after any transfer costs borne by the vendor have been deducted.

It can be calculated for production units, the institutional sectors upon which they depend, and branches of activity.

Changes in inventories

Changes in inventories (P52) are measured by the value of the entries into inventories minus the value of withdrawals and the value of any current losses of goods held in inventories. Inventories consist of raw materials and supplies intended to be used in the production process, work-in-progress, finished goods and goods for resale. Time of recording and valuation of changes in inventories must be consistent with those of other transactions on products.

Acquisitions less disposals of valuables

Valuables are non-financial goods that are not used for production or consumption and do not physically deteriorate over time under normal conditions. They are acquired and held primarly as stores of value. Main valuables are precious stones and metals, antiques and other art objects. Acquisitions less disposals of valuables (P53) are recorded in gross capital formation, and not in final consumption expenditure. In French national accounts, they are made only by households.