New way to measure economy is unveiled
A new measure gauging the health of the economy is to be published, stripping out some of the accounting activities of multinationals that led to the shock lurch in official growth figures dubbed 'Leprechaun economics'.
The new measure will largely exclude activity by multinationals that doesn't generate any real economic activity in the State, but has traditionally been booked in the national accounts.
It follows the 26pc GDP surge announced in July of last year, driven predominantly by the relocation of entire balance sheets to Ireland, and not by any real economic activity.
The fallout from the publication of the figure led to the establishment of a review group tasked with examining whether there was a better way of establishing what was taking place in the domestic economy.
Central Bank Governor Professor Philip Lane, who chaired the review group, said supplemental data to official GDP and GNP data was required to give a flavour of what's going on. "For us, it's highly valuable to have an alternative and I'm guessing that the Department of Finance and the political system will also find it valuable to have a scale factor which helps them think about the appropriate level of government spending, the appropriate level of revenue and managing debt and deficits," Professor Lane said. And he said it would also be useful in the context of Brexit, amid the prospect of more international firms moving here.
Official figures released in July showing the economy grew by a massive 26pc in 2015 - more than three times faster than first thought - were quickly dismissed as "farcical", although no blame was attributed to the Central Statistics Office. Economists said that while growth was strong, the official figure was dramatically overinflated - because it was driven primarily by the activities of Ireland's multinational and aircraft-leasing sectors. Nobel-prize winning economist Paul Krugman described the data as 'Leprechaun economics'
Padraig Dalton, CSO director general, said yesterday that "soundbite" risked trivialising what occurred. He said there's an expertise around globalisation in Ireland that doesn't exist overseas. "They haven't been faced with these type of challenges, and while they understand globalisation, I'm not sure that all of the commentators have a full understanding of the impact of globalisation on the compilation of official statistics. I think what happened last July, there was a relocation of IP in Ireland. There were real issues and I think that soundbite gives the wrong impression that it didn't actually happen. It runs the risk of inappropriately trivialising what is a very complex issue and what is a very real issue."
To deal with that, the Economic Statistics Review Group recommended that the new measure - an adjusted version of gross national income (GNI), which is the sum of a nation's GDP plus net income received from overseas - be introduced.
It will exclude the depreciation attributable to relocated capital assets and the impact of re-domiciled firms.
The CSO is also proposing to publish a breakdown of the non-financial corporations sector into two defined sub-sectors - foreign and domestic. The breakdown will be between the companies covered by the CSO's large cases unit and the remainder.
The agency will also publish quarterly underlying investment and domestic demand measures that take account of the impact of Intellectual Property relocations, contract manufacturing, aircraft leasing and re-domiciled firms.
Meanwhile, the International Monetary Fund released its latest review of Ireland and stated that the economic outlook remains positive, although risks remain, including from Brexit.
It said the government's fiscal targets are broadly appropriate. But it said fiscal policy could be more supportive of growth. Banks here operate in a challenging environment, it said, but added that the capital and liquidity positions of domestic banks have improved.
"With low underlying profitability, they remain vulnerable to shocks," he said.
And it said that the UK vote to leave the EU has introduced "significant risk and uncertainty" to the outlook for the economy.