Verdict on economy awaits Iraq outcome

WHEN the economy was enjoying its boom period there was little distinction being made between Gross National Product and Gross Domestic Product.

But that’s all changed. Unemployment is rising - it could hit 5.6% this year and there is no argument that the boom times as we knew them are over.

It is perhaps indicative of a more introspective economic period when every figure and every measure is analysed to death.

This is not just true of the Irish economy but is certainly the case when it comes to the key measures coming out of the US.

Figures have become the new obsession as people clutch and analyse every statistic in an effort to decipher good or bad news from the figures.

In the current uncertain global political and economic climate the attention to detail is understandable as investors look for any crumb of comfort in figures that can be variously interpreted as good or bad depending on the prevailing mood at the time.

Last month’s employment figure in the US was a classic case. Up by over 140,000 they were good enough to drive up the US dollar and after closer scrutiny drove it back down again when it was decided the figures were suspect.

It was the very large retail element in the figures that scuppered the initial lift enjoyed by the dollar.

It was over 90,000 and analysts thought hey this is odd. Retail should have generated jobs in the run up to Christmas, not after it was the market view and the dollar lost its gains in further nervous trading.

At this point anyone taking a dispassionate view of what has been going on since the markets started to go into free fall early 2001 could be forgiven for detecting more than a hint of desperation in the analysis.

Which brings me back to the stand off between the bulls and the bears on the Irish economy.

Now the debate has shifted to what is the best and most reliable measure of our economic performance.

The bears suggest it is Gross National product and the bulls insist that this is the wrong debate.

They measure different things and Dermot O’Brien of NCB Stockbrokers say the bears have gone on the GNP tack to bolster their gloomier take on the economy.

Even if the GNP argument was valid O’Brien points out that the Q3 figure of 2002 was distorted by a serious drop in income inflows into the country which if they had held up would have left us with a GNP figure of 3% for the year to end September and not a negative 0/3% outcome.

Even allowing for the 0.3% measure O’Brien argues as does Dan McLaughlin of Bank of Ireland that GDP simply cannot be discounted and it performed significantly to give growth of 6.9% in the year to end September 2002.

And even if we are to accept the reality that multinationals relocated 5 to 7bn in profit transfers in the quarter the argument can be made that this is what we signed up for when we set the 10% corporation tax regime in motion to attract Foreign Direct Investment (FDI).

Robbie Kelleher of Davy Stockbrokers insists that GNP is the best measure of performance because it’s what’s left when the multi nationals take their loot home, which is, after all, their only reason for their being here in the first instance.

If last year the US firms here generated such huge profits in the Irish economy it can also be argued that we as a country have played a crucial role in underpinning the health of those major corporations.

On that basis the argument can be made that companies making such hugh profits in Ireland will definitely stay here.

It is also part of the agreement that they are free to transfer their profits out of the Irish economy, otherwise they would not come here.

There is no doubt that the difference in billions between the two measures is substantial, but those who are optimistic about the Irish economy argue that the gaps in the contribution of the multinationals has been major in the context of this economy.