Critical commentary about ‘leprechaun economics’ and ‘fake news’ is doing Ireland and its reputation no favours, writes Oliver Mangan
The recently published CSO National Accounts for 2016 show that GDP grew by 5.2% last year, which was stronger than expected.
Meanwhile, GNP is estimated to have grown by 9%, having been boosted by a decline in profit repatriations by multinational companies. Hence, it does not provide a true reflection of the real performance of the economy.
Irish National Accounts have become badly distorted by the activities of multi-national companies in the past couple of years and this is, again, reflected in the data for last year.
The figures show that GDP flat-lined in the first half of the year and then grew by 6% in the second half, which clearly did not happen.
Contract manufacturing, transfers of intellectual property rights and companies re-domiciling to Ireland are all distorting the data. This has given rise to some rather bizarre figures, such as growth rates of 45% and 33% in fixed investment in 2016 and 2015, export growth slowing from 34.5% in 2015 to 2.4% last year, as well as the infamous 26.3% rise in GDP recorded for 2015.
We have great sympathy for the CSO in trying to compile the National Accounts as it is required to follow Eurostat conventions and UN rules and, so, is unable to adjust Irish data to allow for distortions and produce meaningful measures of GDP, GNP and other figures. In the past, the CSO was able to publish detailed data which allowed economists to derive the underlying growth rate of the domestic economy. This has reduced even further the usefulness of the National Accounts data as a barometer of economic activity.
The National Accounts do show a slowdown in the growth in consumer spending to 3% last year from 4.5% in 2015, although we suspect this figure could be revised up when final data are published in the summer. They also show growth of 5.3% in net government spending on goods and services last year, which would not seem to tie in with reality.
Output from the construction sector rose by 11.4% in 2016 as it continues its steady, albeit moderate, recovery. Meanwhile, agricultural output rose by 6%, continuing to grow at a strong rate following the lifting of EU quota restrictions on milk production. There was also continuing strong growth in output from a broad range of service sectors — including transport, communications, IT software, business and hospitality services.
Beyond that, there is not much to be gleaned from the detailed National Accounts, with external trade and manufacturing output figures, as well as investment data, all badly distorted. The distortions also extend to the balance of payments figures, which are completely unreliable.
The CSO hopes to publish a new metric this summer called GNI, or adjusted Gross National Income, which will provide an alternative measure of Irish growth that will exclude much of the distortionary effects caused by re-domiciled firms and relocation of intellectual property rights.
This is badly required as the National Accounts are not fit for purpose. They also give rise to critical commentary about ‘leprechaun economics’ and ‘fake news’ that is doing Ireland and its reputation no favours.
We also need to look at other data to get a clearer picture on how the economy is performing. Employment grew by 2.9% in 2016 after increasing by 2.6% in 2015. These jobs figures would suggest that the real growth rate of the Irish economy may have been in the range of 4%-4.5% in the last couple of years.
Data for early 2017 suggest the economy is continuing to perform well. It is just a pity that we don’t have reliable National Accounts data to show how well the economy is performing.
Oliver Mangan is chief economist at AIB
© Irish Examiner Ltd. All rights reserved