'Leprechaun economics' - Ireland's 26pc growth spurt laughed off as 'farcical'
Published 13/07/2016 | 02:30
Official figures showing the Irish economy grew by a massive 26pc last year - more than three times faster than first thought - were quickly dismissed as "farcical".
Nobel Prize-winning economist Paul Krugman described the phenomenon as "Leprechaun economics", as experts lined up to explain why the figure doesn't reflect reality.
Economists say that while growth is strong, the official figure is dramatically overinflated - because it is driven primarily by the activities of Ireland's multinational and aircraft-leasing sectors.
But the high growth figure is sure to prompt calls for increased public spending and put pressure on the Government to loosen the purse strings.
But Public Expenditure and Reform Minister Paschal Donohoe was forced to move to dampen expectations, insisting that the CSO figures would not influence choices made by the Government as part of Budget 2017.
"I would be exceptionally cautious about translating that degree of economic growth into budget choices that we are going to make for 2017," he said.
Mr Donohoe welcomed "any degree of growth" but said he was more enthused by figures that showed consumer spending rising by around 4.5pc.
"I would be very, very cautious about saying that rate of growth is anything that we are going to be able to sustain in the future.
"We have to see a growth like that as something that is exceptional," he told Newstalk's 'Lunchtime'.
Meanwhile, Fianna Fáil's finance spokesman Michael McGrath told the Irish Independent that the figures were a "bolt from the blue" and "could draw unwanted attention to Ireland".
"There has to be a clear explanation given for such an extraordinary jump in economic activity when it's not matched by other indicators such as employment or tax receipts," he said.
"The reputation of the State as a place with a stable business environment must be protected. Unexpected swings of this magnitude are not always helpful.
"To have overall economic output distorted to this extent needs investigation."
He added that there were "whispers" of some large companies channelling large amounts of money into Ireland and questions must be asked about how the "sudden and unexpected spike" could happen "under the noses and the radar of the CSO and the Department of Finance". The Cork TD also said it's unlikely to affect Budget 2017.
The colossal increase in GDP was due primarily to some very large foreign companies reinventing themselves as Irish companies to benefit from our low corporation tax rate, as well as purchases by aircraft-leasing firms based here.
There was also a massive jump in net exports, due largely to the fact that multinationals here contracted companies overseas to do work. But some have booked it through their operations in Ireland, even though no economic activity was taking place here.
The big concern is that it is now difficult to ascertain the "real" level of economic growth when exceptional factors are removed from the equation.
Aidan Regan, assistant professor in the School of Politics and International Relations at University College Dublin, said there was "no credibility to the national accounts".
"The 26.3pc makes for a great media headline. But if the media want to go find this growth, they might as well go plane-watching at Dublin airport. It's a farce," he said.
And although the figure does not reflect what's taking place in the economy, it does have an impact in terms of the country's debt-to-GDP ratio, a closely watched international gauge.
Finance Minister Michael Noonan said that is now expected to fall from the 88pc figure recorded in the Summer Economic Statement last month, to just under 80pc now.
"I think the figures released by the Central Statistics Office show that Ireland's economy continues to grow," he said.
"People's lives are improving, with more at work than at any time since the onset of the downturn. We no longer need to impose swingeing cuts to public services, rather we have room to invest in services and infrastructure."
Sinn Féin finance spokesman Pearse Doherty urged people to take it with "a ton of salt" and said the number was a "nonsense". "It is irrelevant. It does not reflect any sort of reality," he said.