The Irish Central Statistics Office is facing international ridicule for its “leprechaun economics,” after announcing a 26% growth rate in Irish GDP for 2015, up from an initial estimate of 7.8%.
Concern has been shown by many of the world’s top economists that the enormous growth rate is not reflective of the true rate of growth in Ireland in the last year. They feel the figure should be closer to the increase shown in consumer spending for 2015, which stood at 4.5%.
Nobel-prize award-winning economist Paul Krugman, in particular, criticized the growth rate, coining the phrase “leprechaun economics” in a tweet in which he highlights one-off occurrences he believes should not have been considered in an accurate reflection of growth rate, such as the restructuring of multinationals that did not see them completely physically relocate to Ireland, the movement of patents, and activity in the aircraft leasing sector.
Leprechaun economics: Ireland reports 26 percent growth! But it doesn't make sense. Why are these in GDP? pic.twitter.com/h6M0LhQkSd— Paul Krugman (@paulkrugman) July 12, 2016
The rate released by the CSO includes a 102 percent spike in net exports, which would not have occurred if these activities weren't taken into account, and many economists feel they have no real relation to the Irish economy.
The open Irish economy, with its 12.5 percent corporation tax, has attracted several US companies in recent years and this has been blamed for the spike in GDP in 2015. Many of these companies take advantage of tax inversions to relocate their headquarters to Ireland but maintain most of their operations overseas. Under these terms, however, the company is still deemed “Irish” in terms of the annual government finance figures. This may not be an accurate reflection of the percentage of the company's assets based in Ireland itself or the employment being created in these headquarters, however.
“The growth reported for 2015 is clearly an aberration, mainly caused by inversions during the period, but it does have some tangible consequences for the country,” Dermot O’Leary, an economist at Goodbody Stockbrokers in Dublin, told Bloomberg.
“In a highly charged U.S. political climate where the issue is likely to be prominent, it brings unwanted attention on Ireland as a location for large inversions.”
The CSO stand by their figures, however, acknowledging that such a large increase may have come as a shock.
"That's how we understand it," Michael Connolly of the CSO told Newstalk.
"We are a very small economy and if we get a big increase in assets, this is what happens.
"We were obviously looking over countries where these sort of numbers occur and they occur when something very dramatic happens or a collection of things comes together."
Mins Donohoe and Noonan insisting no leprechaun economics here.True, it's Pokémon Go economics, with fantasy indistinguishable from reality— Lise Hand (@liseinthecity) July 13, 2016
Ridicule of CSO growth figure might lead people to question their unemployment figures #leprechaunEconomics— Mick Caul (@caulmick) July 13, 2016
The rate of GDP growth for 2015 is almost four times that which was recorded by China last year and may result in an increase in Ireland’s contribution to the EU as the country's debt-to GDP ratio has now plummeted from 94 percent to under 80 percent.
“We can expect that there will be an increase on the circa 2.1 billion euros contribution we had expected to pay in 2017,” the Irish Department of Finance told Bloomberg on Wednesday.
“The final impact on our EU Budget contributions will depend on a number of variables including the size of the overall EU Budget for 2017 which is not due to be agreed until November.”
The CSO-announced growth rate is also the fastest rate on record for an Organization for Economic Cooperation and Development (OECD) member and is over three times the original estimate of 7.8 percent.
— Paul lynam (@pauldclynam) July 12, 2016
It's never good when a Nobel Laureate uses the term "Leprechaun economics" https://t.co/4tDUzUAKiS— aquigley (@aquigley) July 12, 2016
Central Bank Governor Philip Lane has voiced his concerns about the extremely high rate and is believed to be meeting with the CSO to discuss their figures on Monday. Irish opposition leader Mícheál Martin has also called the figures into question and yesterday requested an inquiry into how the CSO came to this rate.
Earlier this year the governing parties - Fine Gael and Labour - lost seats in the general election, a remarkable outcome if the economy was growing at 26%. Political commentators believed that the weak showing for the Labour Party in particular, suggested the general Irish public was not feeling the effects of the recovery. The GDP growth rate is sure to draw further attention on how the country’s tax system is organized.
Vincent Boland from The Financial Times believes the current figures will only “reinforce Irish cynicism about its much-touted recovery” mocking the CSO announcement, calling it a “work of Irish fiction.”
David McNamara, an economist at Davy, Ireland’s largest securities firm, laid some of the blame on the standard for national accounting within the EU, which does not suit Ireland’s open economy.
“Clearly, the standard European national accounting methodology is not fit for purpose as an indicator of economic growth in an economy like Ireland,” he said
"It throws away the European rule book in terms of its sensible application to Irish economic conditions," stated KBC chief economist Austin Hughes.
"A major rethink is required to formulate fiscal rules that are likely to lead to sustainable and healthy trends in Irish public finances.”
— Sandra Lewis (@ayreslewis) July 13, 2016
H/T: The Irish Times