Consumer spending may not be as robust as once thought even as employment continues to grow, economists have warned.
They voiced their concerns as official figures published yesterday showed the Irish economy expanded at a slower-than-expected pace in the spring and early summer, once the accounting distortions caused by multinationals that have led to claims of “leprechuan economics” are excluded.
The CSO said GDP grew by 0.6% in the three months to the end of June from the previous three months, and was up 4.1% from the same period in 2015.
The quarter-on-quarter growth figure was similar to GDP rates recorded in the UK and the Netherlands, and was also close to the EU average growth rate of 0.4% for the same period, senior statisticians said.
GDP growth was boosted by a large increase in building and construction even though exports – once the engine of growth in the economy in previous years – were “pretty flat”.
Building and construction activity jumped by 12.2% from a year earlier, according to the figures.
Huge revisions announced earlier this year which showed GDP had surged by over 26% in 2015 had led to the claim by Nobel laureate Paul Krugman of “leprechuan economics”.
Those revisions were driven by a €300bn surge last year in the country’s capital stock after multinationals transferred Intellectual Property rights into Ireland.
Such transfers nonetheless do not boost economic activity or employment in the domestic economy to any measurable extent.
The CSO said it remains bound by confidentiality clauses and cannot disclose the identity of the multinationals, but the Irish Examiner reported last week that the 2015 surge was almost completely due to the accounting transfer by Apple of its Intellectual Property into Ireland after the Government was forced to close the so-called state-less tax loophole.
The latest figures continue to show the distortions caused by multinationals, though the pace of transfers appears to have slowed. The CSO said that about €9.4bn in Intellectual Property rights was imported into Ireland in the second quarter.
Alan McQuaid, chief economist at Merrion Capital, said there was now a question mark over whether consumer spending can carry the economy.
Consumer spending may have been affected by the speculation of the run-up to June 23 when Britain voted to leave the EU, he said, as the second quarter figures “reflected greater caution by consumers”.
Mr McQuaid said that as seen during the election campaign most people do not experience the benefit from growth which is driven by the transfer of Intellectual Property into the country. Austin Hughes, chief economist at KBC Bank Ireland, said the figures show that the economy isn’t growing at a spectacular rate but “is growing at a solid to strong rate.”
“The consumer who had has gotten a job is doing much better. Those who haven’t gotten a job are still probably finding things quite mixed. The recovery they have heard about is not the recovery they are feeling.
"These numbers signal a slight softening in the pace of consumer growth,” Mr Hughes said.
Fergal O’Brien, director of policy and chief economist at business group Ibec, said that Intellectual Property transfers help in time to “embed” multinationals in the economy.
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