The economy is driving in the dark with its side-lights on

You would have to have some sympathy for the economic forecasters in the Central Bank. No doubt a few weeks ago they were polishing their growth estimates for this year and next, when the extraordinary CSO data was published revising last year's GDP growth forecast to over 26 per cent. When the official figures are so far departed from reality, how on earth do you predict what might happen next?

Economic forecasting was always a dangerous game, but the Central Bank economists will be conscious that a movement of a fleet or aircraft, or a patent for intellectual property either into or out of Ireland could send the data sharply up, or down, again. Forecasting Irish GDP is now a game of lucky dip. As such the bank’s forecasts might be seen more as indicators of what is happening in the underlying economy, rather than estimates for what the actual GDP figures will show. And that is before you even get into discussing the enormous uncertainties caused by Brexit and their potential impacts on growth.

As the Central Bank says, we need a new system for measuring economic activity. This would at least help in domestic policymaking. However, the problem would remain that the headline GDP figures will still have to be compiled using the international rule book, and our compliance to various EU rules relating to the debt and deficit will still be influenced by this. The CSO counts the figures on the basis of the rules – that is its job. There is a lot for the high-level committee of Irish public servants tasked with examining this issue to think about.

The Central Bank’s latest report puts the dilemma neatly when it says that Irish national accounts data “now include a very significant amount of activity carried out elsewhere, but formally recorded as part of GDP and GNP”.

As the bank points out, the implications are far-reaching, including having no proper gauge of the sustainability of budget policy. To judge whether a budget should add or subtract cash via tax and spending measures, or how sustainable the public finances are, you need a proper measure of the size of the economy and its growth rate. As of now, we have neither. We are driving in the dark, with – at best – our side-lights on.