Analysts: Economy is gathering momentum

A new picture of the economy shows it is much smaller and the country’s debt burden is much heavier but also suggests that the domestic economy is powering ahead.

The new measure of economy, using a version of GNI (gross national income) to better reflect the unique Irish conditions, showed the economy last year was worth just over €189bn, almost a third lower than the €275.5bn under the conventional GDP measure used across the world for international comparisons. The smaller size of the economy means the State’s debt ratio was therefore much higher too, at 106% of the GNI cake instead of 73% of GDP.

But many economists said that both sets of figures — GDP and modified GNI —show an economy that is picking up steam for domestic reasons, as construction and consumer spending picks up, rather than being driven by exports or by accounting around the activity of multinationals. The economy grew by 5.1% in terms of GDP in 2016 — the fastest in the EU— and by an even faster pace under the modified GNI measure.

The figures are designed to take account of the huge distortions caused by a small number of huge tech multinationals and aircraft leasing firms on the national accounts, as measured in terms of GDP. Ireland with its small open economy has one of the largest bases of foreign-owned firms which make it one of the most globalised in the world. Trouble arises over decisions for budget policies when external factors such as multinationals rearranging their global tax affairs artificially boosts and exaggerates the level of Irish GDP.

Last summer, Ireland was thrust into the international spotlight when revised GDP figures for 2015 ostensibly showed the economy surging by over 26%, giving rise to the slightly offensive jibe of “Leprechaun Economics”. As multinationals came under pressure to declare more in taxes worldwide, a small number of firms based here moved huge amounts of so-called intellectual property (IP) into Ireland.

Much of the IP is pure accounting but it can lead to an expansion of the Irish corporate tax base, and, in 2015, the exchequer took in €2.3bn more in corporate tax receipts than anticipated. The scale of huge IP transfers have now been revealed. In 2014, there was €1.9bn in IP transactions, which grew to €8.2bn in 2015 and leaped to €35.8bn last year.

Alan McQuaid, chief economist at Merrion Capital, said based on the GNI data “growth this year is likely to be 5% to 6% in real [GDP] terms instead of the 4% to 5% we originally thought”.

Austin Hughes, chief economist at KBC Ireland, said the “underlying growth rate is stronger than previously thought”. On the implications for Finance Minister Paschal Donohoe’s first budget, Mr Hughes said: “The economy is still delivering an improving fiscal position but one that is unlikely to be really bountiful this year” which means “you have an economy that is perceived as doing very well but a budget that is not going to be massively stimulative or going to spark a feel-good factor among consumers.”

“GNI grew by 11.9% in 2015 in nominal terms and 9.4% in 2016, indicating that Ireland’s economy is growing at a rapid pace,” said Conall Mac Coille, chief economist at Davy Stockbrokers.

Dermot O’Leary, chief economist at Goodbody, said that the figures showed underlying growth was stronger than thought.


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