Monday 19 March 2018

'Lies, damn lies and statistics': Seven things you need to know about our 'farcical' economic growth figures

Nobel prize-winning economist Paul Krugman. Photographer: Craig Ruttle/Bloomberg
Nobel prize-winning economist Paul Krugman. Photographer: Craig Ruttle/Bloomberg
Colm Kelpie

Colm Kelpie

Q: Did the Irish economy really grow by more than 26pc last year?

A: No. Well on paper, yes, but in reality, no. The Central Statistics Office, which in March said the economy in GDP terms surged by 7.8pc last year, revised its figure to a massive 26.3pc.

The activities of Ireland's multinational sector are primarily the cause of this. The CSO said the surge was driven by an increase in the number of aircraft imported for international leasing, at least in accounting terms, and, in part, by some very large foreign companies reinventing themselves as Irish to benefit from our low corporation tax rate. That doesn't necessarily mean there's any meaningful movement of workers or operations here. These are called corporate inversions, in which a US company registers in Ireland to avoid paying hefty corporate taxes in America. But in reality, there has been no change to the economy as you and I know it. It's multinational funny games related to our complex, open economy.

Q: So is this essentially phantom growth?

A: That's a decent way of putting it. Economists have dismissed the data as utterly meaningless and "farcical". Even Nobel Prize-winning economist Paul Krugman has weighed into the debate, branding it as "Leprechaun economics". They say the best indication of the health of the economy can be found by looking at indicators like employment and unemployment, and consumer demand.

Q: If this is essentially phantom growth, what is the underlying, true growth, in the economy?

A: The Central Statistics Office didn't say, which is rather frustrating.

But most economists estimate that it's probably in the 4pc to 5pc range, with the Department of Finance forecasting growth of 4.9pc this year, although that is likely to soften now in the wake of Brexit. So, even though the figure given yesterday is dismissed as meaningless, the economy is growing strongly. Just not as strongly as the official figures suggest.

Q: If this surge in growth is driven by multinationals, is there a better measurement of economic strength?

A: Up to now, it's been GNP, or Gross National Product.

That strips out the effect of multinationals, but the problem now is those companies that have registered themselves as Irish, so they can now be classed as Irish companies according to Dermot O'Leary of Goodbody Stockborkers, and can be counted in GNP. This means that measure is now distorted also.

So there are now question marks over the validity of not only GDP data in Ireland, but also GNP.

Q: You mean to tell me we have an official body giving the public the official GDP figure, which is then dismissed as meaningless, and we simply accept it?

A: Welcome to Ireland. It's not fair to blame the CSO, because this is the economy that we've created for ourselves, and it is operating within those parameters.

When you have an open economy as heavily dependent on multinationals as we are, you're going to get these anomalies. But what emerged yesterday brought it to a new level of absurdity.

Q: Does any of this matter in my life, then?

A: Yes, because GDP is probably the key international benchmark for the health of an economy.

Everything from how much we owe, to how much we can invest, is measured against it.

The cost to Ireland of our membership of international bodies, including the European Union and IMF is calculated based on the size of the economy. It also, in theory, has an effect on the Budget arithmetic.

Q: Oh, you mean the Government could have more money in the Budget?

A: Don't get greedy. Haven't you been paying attention? The official figures are misleading. The amount of money in the economy hasn't changed.

We haven't suddenly gotten 26pc richer, but the Government could be under some pressure nonetheless to loosen the purse strings.

Q: Does this damage our international reputation?

A: Potentially, yes. The chief reason for all of this is the unusually big impact here of multinationals, which is undoubtedly linked to our low corporate tax rate.

We're already criticised because of that, and these off-the-wall statistics will cast the spotlight further on the credibility of Ireland Inc.

Irish Independent

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