A surge in Irish gross domestic product (GDP) growth in the first quarter of 2015 was famously dubbed as “Leprechaun economics” in an article in the New York Times written by top US economist Paul Krugman.
So seriously did the government at the time take it that it got the Irish ambassador to Washington to complain to the newspaper for carrying an “unacceptable slur.”
And now we may be heading for another episode, as attempts by big companies to get in to the US market ahead of US president Donald Trump’s tariffs threaten to put Irish economic data back on the roller coaster.
Back in 2015, Central Statistics Office (CSO) figures showed that Irish GDP had surged by over 26 per cent in the first quarter of that year, a rise later revised upwards to more than 30 per cent.
The relocation of intellectual property assets to Ireland by major multinationals – including Apple - was the main reason for the massive distortion of Irish economic data at the time.
These kinds of manoeuvres hugely inflate the level of GDP – which is the key measure used to compare economies internationally.
But Ireland’s GDP per capita ranking – second in the world behind Luxembourg before any adjustment for different prices levels according to International Monetary Fund (IMF) figures - clearly does not reflect reality.
More realistic indicators show Ireland with a more middle-of-the-pack position – living standards have clearly risen here since the Celtic Tiger arrived in the late 1990s - but by nothing like as much as the headline figures would suggest. The Irish public read the figures, but don’t feel anything like that scale of benefit in their pockets.
Since 2015, the Leprechaun tag has been pulled out from time to time as multinational factors swing Irish GDP one way and the other- including during Covid. And now we are there again.
In their latest economic forecasts the European Commission has excluded Ireland from a key graph looking at trends in production, investment and exports, to remove the distortion this would cause to the overall EU data.
This time around, a key distortion has been a move by companies based here to get product into the US market ahead of the anticipated imposition of tariffs by the Trump administration. The pharma sector has been central to this story.
In March, just before Trump’s much-trailed “Liberation Day” announcement of tariffs – much of them later postponed – monthly exports from the Irish pharma and chemical sector to the US were an astonishing €24 billion, compared to less than €4 billion in the same month last year.
Overall monthly Irish goods exports of €37.2 billion were close to double the same month last year, according to the CSO data.
This surge in activity is also reflected in figures which showed that production in manufacturing industries was 33.6 per cent higher in the first quarter of this year when compared with the same period in 2024.
All this added up to a rise of over 13 per cent in Irish GDP in the first quarter, according to the first estimate from the CSO, compared to the same period in 2024.
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So the top line figures show that the economy continues to storm ahead, even if the reality is more prosaic.
In an interesting calculation by Oxford Economics, the consulting firm, based on what it calls “growth momentum” show how out of line this puts Ireland with the rest of the European Union.
The data takes the indicators from early in the year and calculates what they would translate to in a full-year, if output levels remained flat from here on. In other words it is not a forecast, but rather an indicator based on current growth rates.
According to Daniel Kral, lead economist with Oxford Economists: “Even if Ireland‘s economy is flat for the rest of this year, the strong finish to 2024 and surge in quarter one would result in full year growth of 8 per cent.” This compared to a euro zone average of 0.8 per cent – which falls to 0.5 per cent if Ireland is excluded.
The surge in exports as companies – particularly but not only in pharma – move to get in ahead of the tariffs is likely to push up GDP growth for the first half of the year, underlining the Leprechaun economics effect. Ireland will again be an outlier.
By just how much is hard to calculate. In some cases companies may be exporting existing stocks of products early – and running these down counts as a negative in GDP, offsetting the positive impact on GDP from export growth. Also, the figures hint that some product which may have been intended for other markets may have been diverted to the US.
Another GDP roller coaster is on the cards as – at some stage - exports to the US will slow given that so much pharma product has been shipped early to the US. At some stage these will be run down and exports will fall back sharply.
What happens next will rely largely on Trump’s policies. A so-called section 232 investigation (referring to section 232 of a 1962 Act) was ordered by Trump into pharma production in the US after his “Liberation Day”, to assess the impact of overseas supply chains on national security and the capacity of the domestic sector.
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Most of the steps in this inquiry – including consultation with the sector – now appear to be nearing completion, meaning the study could be published shortly.
In turn this could lead to renewed threats of tariffs on pharma or perhaps some wider negotiations with the sector also covering pricing, where Trump has demanded a cut in drug costs in the US, using the considerable purchasing power of the federal government to wield a big stuck.
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Pharma production and exports in the short term will be driven by how this unpredictable agenda plays out. But we have seen already in recent years how the sector can swing Ireland’s economist statistics wildly in both directions.
The real issue, of course, is what happens in the longer term – the structural change rather than the cyclical swings. Trump is trying to attract pharma production back to the US from countries like Ireland.
Over time some production aimed at the US market could move from Ireland back to the US. As well as considering where they produce, big pharma could also change their company structures and accounting processes to declare less profit in Ireland – and more in the US – cutting their corporate tax payments here.
The impact of all this on Ireland’s economic data will not be straightforward, but it would certainly mean a longer-term hit on tax revenue and growth.
The turbo charging of Irish GDP by the activities of multinationals is best captured by the difference between GDP and what is called modified Gross National Income, or GNI*, an aggregate developed to try to filter out the tax-driven distortions.
In 2024, GDP is put by the CSO at €533 billion, while GNI* is estimated by the Department of Finance at €312 billion. The €200 billion gap largely relates to the impact of multinational accounting, as well as the activities of sectors like aircraft leasing. It is Ireland’s economic froth.
While GNI* is a better measures of the size of real economic activity and the world most of us live in, Ireland also gets a slice of the €200 billion in tax revenue – and this has some links to the real activity of these companies in Ireland.
So any move by US companies to report less profit here – and there are a variety of reasons why this might happen – will have a real impact on the exchequer and the wider economy. And of course Trump’s tariffs also threaten the economy, the bit measured by GNI*, due to the possible impact of tariffs and other policies on exports and jobs here.
The postponement of the imposition of additional tariffs – beyond the 10 per cent which now applies on all products – has led to the issue moving out of the headlines amid some relief in countries selling to the US. But the threat has not gone away, and US treasury secretary Scott Bessent was again talking up tariffs in recent days.
The 90-day deadline for the suspension of tariffs expires in early July. By report on the pharma imports is likely to land before then. There is a lot of risk still at play here, even if there is a feeling that Trump now realises that tariffs can really hurt the US economy, too.
