By Padraic Halpin
DUBLIN (Reuters) – Statistical distortions catapulted Ireland’s gross domestic product (GDP) index to apparent annual growth of 10.5 percent in the third quarter, but underlying data nevertheless showed the real economy performing very strongly.
The relevance of using GDP as an accurate measure in Europe’s fastest growing economy was called into question last year when 2015 growth figures were adjusted up to 26 percent after a massive revision to the stock of capital assets related to Ireland’s large multinational sector.
This time net exports were flattered greatly by an absence of large imports of intellectual property and aircraft leasing activity, which have skewed data in the past. That pushed GDP up 4.2 percent quarter-on-quarter, ensuring the series remains “an analyst’s nightmare”, Davy Stockbrokers wrote in a note.
The Central Statistics Office (CSO) said that even if there was no growth in the final quarter, the final figure for 2017 would still come in close to 7 percent. China’s economy is forecast to grow by 6.5 percent this year.
Finance Minister Paschal Donohoe said GDP was likely to beat official forecasts for growth of 5.1 percent this year.
“Notwithstanding the well-known limitations with GDP, it is clear that the recovery continues to outperform expectations and while this is to be welcomed, it creates its own challenges,” Donohoe said in a statement.
“In particular, if the economy continues to grow in excess of its potential, capacity constraints will begin to emerge. In these circumstances, it is essential that budgetary policy does not contribute to overheating. This is one of the defining economic challenges facing the Government.”
Irish GDP growth is almost certain to be the best in Europe for the fourth successive year, and a host of more consistent data economists prefer – from tumbling unemployment to robust retail sales – have been very strong in that period.
The statistics office has begun to phase in a new measure – “Modified Gross National Income”, or “GNI*” – which strips out the effects of multinational firms re-domiciling, relocating or depreciating their capital assets.
A quarterly published sub-index of the new series – modified final domestic demand, which removes some of those globalized activities – rose by 2.4 percent quarter-on-quarter and by 5 percent on the year.
Michael Connolly, a senior statistician at the CSO, pointed to that as a figure that gives a more accurate picture of actual activity in the economy.
“Ireland continues to be a hyper-globalized economy but the core observation we can make is that the Irish consumer is in a sweet spot and they now have the confidence to spend,” said Fergal O’Brien, chief economist at Irish business lobby IBEC.
“Solid wage growth, no inflation and very strong employment growth has created really strong momentum in the economy while construction is recovering and there are no major flashing lights in relation to Brexit impacts in the trading position.”
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