Do not be fooled by bizarre fiction of CSO growth figures

When it comes to handing out awards later this year for the best piece of fiction in the Irish market, the Central Statistics Office could be well in the running for its publication of the 2015 national accounts.

According to the CSO, Irish GDP rose by 26.3 per cent last year, making Ireland the best performing economy, not just in Europe, but the world. And by some distance.

It was nearly four times the rate achieved by China. The average figure for the 28 members of the European Union was 2 per cent while Malta was the next best performer in the EU with growth of about 6.5 per cent, according to data compiled by the CSO to accompany the Irish release yesterday.

The most bizarre thing is that the previous provisional annual estimate for Irish GDP growth in 2015 had been 7.8 per cent, which in itself many experts felt overstated our underlying position.

In a tweet to his 1.5 million followers, Nobel laureate Paul Krugman described the data release as "leprechaun economics", adding that "it doesn't make sense".

Central Bank of Ireland governor Philip Lane made it known to the CSO on Monday that these figures don't accurately represent economic activity in Ireland. He prefers GNP, which strips out multinational repatriations, as a measure of output.

Even at that, the CSO’s data showed the Irish economy growing by 18.7 per cent last year, versus a provisional GNP estimate of 5.7 per cent. Again, this figure is not real.

If it was, we wouldn’t be worrying about how to fund Irish Water or university college fees. And thousands of Irish families wouldn’t be struggling to make ends meet.

Fiscal space

The Department of Finance and the National Treasury Management Agency can’t have been impressed by the CSO statement, given that it could cause confusion about the “fiscal space” available to the Government in October’s budget. A €1 billion adjustment in tax cuts and increased public spending has already been signalled.

Not even the CSO could fully explain the sharp rise in the figures yesterday, beyond indicating it reflected a 102 per cent spike in net exports.

Ireland is a small, open economy and the actions of a few large multinationals can throw the national accounts into disarray, was the message. It has been put down to the impact of aircraft leasing companies locating aircraft here, contract manufacturing and corporate tax inversions.

A handful of companies in the pharma and tech sectors relocated their IP assets here amid the international clampdown on the tax avoidance.

This all had the affect of transferring billions in capital assets to Ireland and boosting the measured level of investment. The country’s capital stock rose from €700 billion in 2014 to more than €1,000 billion last year, a huge jump after year’s of stability

But most of what has taken place in the multinational sector is nothing more than financial re-engineering, which has no real connection to employment or investment on the ground.

Because we’re probably talking about only a handful of companies, the CSO declined to provide any greater detail for fear of effectively identifying the companies involved.

To be fair to the CSO, it is merely applying international accounting rules. The dramatic spike in GDP is not its fault and it hasn’t set out to make Ireland the subject of international ridicule.

However, questions need to be asked as to how this “bolt from the blue”, as Fianna Fáil’s finance spokesman Michael McGrath described it, came about without any prior warning.

The hope is that this is just a one-off for 2015 and there was almost relief that the figures for the first quarter of this year showed a decline of 2.1 per cent in our GDP.

Real growth

So what’s the real growth figure for Ireland?

Economists vary on this but they put it broadly at between 4 and 6 per cent. Personal consumption last year rose by 4.5 per cent, which seems about right.

John Fitzgerald, formerly of the ESRI and a columnist with this newspaper, has previously produced estimates of Ireland's true balance of payments current account position, excluding the impact of inversions and the like.

In his note to clients yesterday, Goodbody economist Dermot O’Leary said it was now of “increasing importance” that the CSO carries out a “similar exercise” to ascertain the true underlying state of the economy given the prominence of these variables in the context of European fiscal rules.

Hear, hear to that.

Twitter: @CiaranHancock1