Monday 17 June 2019

ESRI in warning that it's 'impossible' to determine sustainable growth

Kieran McQuinn of the ESRI. Photo: INM
Kieran McQuinn of the ESRI. Photo: INM

Colm Kelpie

It is impossible to determine a sustainable level of growth in the economy given the continued multinational distortions in the national accounts, the Economic and Social Research Institute (ESRI) has warned.

The think tank said there needed to be a separate set of national accounts published that more effectively strips out the multinational effects.

At the launch of its latest quarterly commentary, ESRI research professor Kieran McQuinn said that with the economy growing so strongly, there was a need for an estimate of sustainable growth.

"It is practically impossible to do so with the current set of national accounts," Mr McQuinn said. "That is a concern, particularly as far as budgetary policy is concerned. And as we know, prudent budgetary policy is essential if we are to transition the economy from the very high rates of growth that we are experiencing at present, to the more sustainable rates of growth."

The ESRI said that estimates of overall output growth, as well as some of the major components of growth, investment and terms of trade, are influenced by large transactions of a select number of big firms.

"While there are ongoing efforts to provide additional indicators of economic activity, it is now apparent that a more comprehensive approach to the preparation of the national accounts is required," the ESRI said. "As well as the standard set of indicators, a parallel set of accounts which are not impacted by these large transactions should also be prepared. Such accounts should be available on both the output and the expenditure side."

A new measure gauging the health of the economy has already been devised, stripping out some of the accounting activities of multinationals that led to the shock lurch in official growth figures dubbed 'Leprechaun economics' in 2015, when Irish GDP surged by 26pc.

The new measure - an adjusted version of gross national income (GNI) known as GNI* - largely excludes activity by multinationals that don't generate any real economic activity in the State, but has traditionally been booked in the national accounts. But Mr Quinn said it doesn't go far enough. "We need to move beyond the output side. We need to move towards the expenditure side of the accounts, and get a handle on not just what is the level of output, but the key components on the investment side and the terms of trade.

"It's [GNI*] an improvement, but I don't think it's quite there in terms of giving us an accurate assessment of what's going on."

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