EU rankings wrong on Irish prosperity, says ex-Central Bank chief

Rankings that put the Republic as the most prosperous state in the European Union are wrong, former Central Bank governor Patrick Honohan has said.

Taking issue with headline economic data, Mr Honohan said the State’s position is more accurately somewhere between eighth and 12th among the EU 27.

In a letter published by the Central Bank on Thursday, Mr Honohan said rankings based on per-capita gross domestic product (GDP) or gross national income (GNI) place the State too highly.

Such a reading is faulty because of the statistical distortions created by the activities of multinationals on GDP and GNI, he said. These include the transferring and depreciation of intellectual property assets and the Irish headquartering of a large number of aircraft-leasing companies, whose activities have a big impact on the data.

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The latest GDP-based statistics show the State's per-capita GDP comes in at fifth highest of 182 countries or third, after Qatar and Singapore, if countries with a population of less than half a million are excluded. Within Europe, the Republic is ranked first.

Misleading

“The large profits being reported by foreign multinational corporations have tended to flatter Irish GDP growth rates for years. But most of these profits were attributable to foreign parents,” Mr Honohan said. “Using GDP as a measure can mislead analysis of such matters as debt, carbon intensity and inequality.”

GNI is an alternative measure previously used to assess the State’s economic performance. However, the transfer of multinational assets here in the wake of a global clampdown on tax avoidance has made it an unreliable indicator of economic activity.

The Central Statistic Office’s modified measure of gross national income, GNI*, pushes Ireland’s economic rank in the EU down from second behind Luxembourg to eighth. However, the measure still does not go far enough to strip out multinational activity, the former Central Bank chief said.

Drawing on recently-published international data that is free of such distortions and which corrects for the relatively high price levels in Ireland, Mr Honohan said Ireland’s ranking is significantly lower than previously reported.

Actual individual consumption

An alternative national indicator, which adds consumption by households and spending by government on individual services for example, shows the State’s “actual individual consumption” per capita last year was about 95 per cent of the EU average.

This places Ireland behind not only the UK and all six of the founding members of the European Economic Community, but also Austria and the three Nordic member states.

“When we dig into the available data in the more relevant parts of per-capita income and consumption, we find that Ireland’s relative international position is somewhere between eighth and 12th in the European Union – a lot lower than is commonly presumed,” Mr Honohan said.

He said the lower ranking comes not only by removing the distortions attributable to multinationals, but also by taking account of the fact that consumer prices in Ireland are relatively high.

"Ireland is a prosperous country, but not as prosperous as is often thought because of the inappropriate use of misleading, albeit conventional, statistics. There is less consumption per capita than in the UK and on this metric we are closer to New Zealand, Israel and Italy than to the United States, Switzerland or Norway, " he said.