For economic nerds like myself, the Central Statistics Office’s July press conference launching the annual national accounts is a major highlight. It is not just because new data on economic growth are published but also because the CSO provides essential explanations of what the data really mean.
That’s important, given the complexity of the Irish economy.
Undoubtedly the most exciting of these press conferences was in July 2016 when the national accounts publication showed a wholly unexpected growth of 25 per cent in GDP the previous year. Those results made headlines around the world, including the infamous “Leprechaun Economics” moniker, but they didn’t square with real living standards.
The exceptional 2015 GDP figure showed that other measures of economic welfare were needed to reflect what was actually going on in Ireland. This led to the development of our own distinctive metric for economic activity, GNI*. However, because it is only calculated for Ireland, it is not widely understood elsewhere. So either the misleading GDP measure is used, or Ireland gets omitted from international comparisons.
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This summer’s data for growth in 2024 did not throw up surprises, but guidance was still needed from CSO statisticians to understand the detailed data. The economy clearly grew very vigorously last year, much more rapidly than most of our neighbours.
[ The Irish economy grew by 22% over the past year. Yes, you read that rightOpens in new window ]
While growth in domestic demand was an essential part of the success, there was even more rapid progress in the export sector.
The figures for 2024 don’t take account of the €14 billion exceptional revenue from the Apple case, because the sum involved is considered a fine, with no corresponding output. Nonetheless, the Apple payment further strengthened the government’s finances.
Despite the threatening behaviour of the Trump administration, it seems likely that we will again see quite rapid growth this year. It will be next year before any US policy changes really begin to bite.
While growth is strong, the latest numbers also show significant imbalances within the economy that make life difficult for many people, and are a challenge for policymakers.
The current account of the balance of payments recorded a surplus of 4.5% of national income last year, showing a very large excess of national savings over investment. This sounds great, but in fact it masks a big problem. Investment, at 19 per cent of national income, is much too low.
Either we must urgently deliver a big increase in spending to develop infrastructure such as housing, water, energy and transport, or else we need to slow the economy so that it can fit into its old clothes.
[ Ireland’s infrastructure is 32% behind international peers, IMF findsOpens in new window ]
The surplus on the balance of payments shows that we have the savings to fund such a big increase in investment.
The shortfall in housing at a time of rapid growth in the economy and our population has pushed rent and house prices up. The failure so far to ramp up investment and tackle the bottlenecks means that, strange as it may seem, the Government must now act to slow the economy to correct the imbalance.
Failure to do so will see further house price inflation, and move the cost of living in Ireland even further out of line with our neighbours.
Last year, with an election looming, the budget pumped too much money into the economy. That aggravated the problem of too little infrastructure, and helped further push up housing costs.
With the election out of the way, this autumn in the budget the Government should take the hard decisions that are needed for the next four years. Given that they have not yet radically reformed the planning and regulatory framework to permit more investment, Budget 2026 needs to take money out of the economy to reduce demand pressures.
The way to slow the economy is to raise taxes or to cut expenditure. Given the need for more investment, it looks as if higher taxes would be the right solution, while keeping a really tight lid on current spending.
However, even a tough budget may not be enough. The strong growth in output and employment is coming from the success of the multinational sector. As this sector will be much less affected by a tough budget than domestic firms, it could continue to grow rapidly, adding to inflationary pressures.
Of course, if Washington were to take action that seriously affects US firms in Ireland, the problem would not be too much growth but a major loss of output. However, if Trump’s threats don’t materialise, the Government may need to discuss with the IDA Ireland how the growth in employment in the multinational sector can be slowed.
