The Irish GDP figures for 2015 are a shambles. They provide little useful data on economic trends – and much that is misleading. They create a real gap as we look for solid information on which we can base policy choices. And they have damaged Ireland’s international reputation as investors and analysts rightly conclude that the reported growth rate of 26 per cent is a fiction, while the focus is also renewed on Ireland as a centre of tax-based corporate restructuring.
In drawing up the figures, the Central Statistics Office (CSO) is abiding by international norms in how the calculations are made. In this sense the figures are what they are and reflect the problems of measuring activity in a small economy where there are very large multinational companies. A range of factors involving corporate restructuring mean that the huge boost to growth was due to the activities of a handful of companies relocating assets to Ireland in various ways.
The CSO cannot invent a new measure, even if its presentation of the figures could have more clearly underlined that the 26 per cent growth rate was in no way representative of the underlying economic picture. It is also unfortunate that confidentiality considerations appear to have limited the CSO’s ability to identify the specific factors affecting the figures. There are also questions about why there were such massive revisions to earlier GDP estimates going back to the first quarter of last year.
An Irish government would normally welcome an upward revision to growth figures. However, the latest data creates more problems than opportunities. The Government and organisations such as the NTMA and the Central Bank will now face questioning from investors and international agencies about just what is believable from Irish official economic data. The focus on our tax regime will be renewed, which could be dangerous in a post-Brexit situation.
Serious work is needed to develop more credible indicators, which are necessary to present a coherent picture internationally and guide policymaking at home. It is welcome that the CSO has said it will establish a consultative group to start this work of looking at how best to measure the economy.
In so far as we can tell, last year was a strong one for the economy and growth has continued this year as consumer spending continues to rise, even if exporters have found life a bit tougher. Brexit may lead to some slowing in the second half of the year, though its impact on consumer sentiment is uncertain. The economy has performed well but international markets are now tricky and underlying growth could be slow moving into 2017. This all calls for realism and some caution in framing a Budget for 2017. And for some framework in which everyone can get a better fix on what exactly is going on in the economy.