New economic Leprechaun on loose as rate of growth plunges
Hopes that the era of Leprechaun Economics was over took a knock yesterday, as official data showed the Irish economy contracted in the first three months of the year, despite evidence of strong jobs growth and a higher tax take.
It came as a newly created economic measuring tool implied that the economy is a third smaller than calculation based on more standard measurements - with implications for debt and spending levels.
Central Statistics Office (CSO) data yesterday showed the economy shrank 2.6pc in the first three months of the year - based on the standard gross domestic product (GDP) measure.
It makes Ireland the worst performing economy in Europe.
However, year-on-year growth remains robust, and the surprise fall was driven by distortions linked to multinationals shifting assets into Ireland in late 2016 that didn't reoccur this year, officials and analysts said.
"Once again, the multinational sector is adding enormous volatility to Ireland's notoriously erratic GDP data," Davy chief economist Conall Mac Coille said. The annual 6pc GDP growth rate, also published by the CSO, better reflects the economy and tallies with employment and industrial growth, he said in a note to investors.
It all highlights the ongoing challenge of accurately tracking economic activity here.
Ireland made headlines around the world last year, when GDP figures showed the economy had grown 26pc in 2015, prompting US economist Paul Krugman to coin the term Leprechaun Economics.
Analysts said the 2015 data was caused by assets being shifted into the country by large corporations rather than reflecting real growth.
Yesterday the CSO unveiled the new tool it will use to track a modified version of gross national income - nicknamed GNI* - that strips out the effects of multinationals shifting assets, relocating or depreciating sometimes vastly valuable intellectual property rights.
The idea is to give a better read of the true size of the economy here.
The GNI* of €189.2bn is 32pc less than headline GDP, suggesting the economy may be a third smaller than the official data used by lenders and European agencies implies.
It suggests the national debt was 106pc of the size of the economy at the end of last year, among the highest in Europe, compared to 73pc of GDP.
The standard GDP measure is also used to calculate Ireland's bill for EU membership, and as a rule-of-thumb guide for international comparisons on areas like spending on health, pensions and education.
Ironically, while GNI* was developed as a response to data seen as overstating the size of the economy, the measure suggests that annual growth last year was 9.4pc - much faster than the offical GDP level suggests.
For 2015 - when the 26pc growth sparked the Leprechaun Economics debate - GNI* suggests a growth rate of almost 12pc, still much faster than elsewhere in the developed world.