CSO needs to develop better tools to tell us what’s really going on

Even on basis of ‘real’ growth, budget should give little away

The growing complexity of the operations of multinational companies headquartered in Ireland has made the national accounts increasingly opaque in recent years.

Earlier this year, when the Central Statistics Office published their first estimate of growth in GNP of 5.7 per cent, I felt that the numbers were deceptive. However, the latest CSO revision of their estimate of growth in GNP in 2015, up from the previous 5.7 per cent to a staggering 18.7 per cent, introduces a whole new dimension to the problem of understanding what is going in Ireland.

Needless to say, the growth in the real economy is only a fraction of what is portrayed in this week’s numbers; what’s happening to employment offers a better guide. While, in the past, the accounts might have been considered to be opaque, that is far too mild a term for the latest set of numbers: they are unreal.


In presenting these amazing figures, the CSO provided even less guidance than normal. They clearly feared that if they provided more explanation, they might disclose confidential information about one or more individual companies. Confidentiality of data is a core principle underpinning CSO data collection.


The latest problem arises because new data came to the attention of the CSO showing that probably between one and three massive foreign firms relocated activity to Ireland last year.

A major part of this was probably the relocation of ownership of intellectual capital (IP) to Ireland by one or more companies whose intellectual capital is extremely valuable.

As a result of this relocation, the capital stock of Ireland suddenly rose from around €750 billion in 2014 to around €1.05 trillion in 2015. This was not because of investment; rather it was because the ownership of the capital, including IP, passed to companies located in Ireland.


If a foreign-owned company makes a profit in Ireland, the profit is assumed to flow back out to the owners, having no net effect on the growth rate of GNP. However, in this case, while the foreign-owned company makes a huge profit from abroad on its capital stock, and this is assumed to flow back out, a large figure for depreciation is recorded on its massive capital stock.

Over time the value of intellectual property falls – a new smartphone model replaces an old one. Depreciation on the new capital stock last year amounted to €25 billion-€30 billion. As depreciation represents a writedown in the value of the property of a foreign-owned company, it has absolutely no effect on the welfare of Irish people. The 'G' in GDP and GNP means these are gross figures where depreciation is not taken out, so the large depreciation figure is recorded as boosting GDP, GNP and the Irish current account surplus.

The CSO also publishes an indicator called Net National Product (NNP) which excludes depreciation, though it is only published on a current price basis. It is probably a better welfare measure as it takes account of the decline in the capital stock, but it's one that's almost never used.

The latest CSO figures for NNP show growth last year of 6.5 per cent. Assuming a small amount of inflation, this means the “real” growth rate for last year was probably in the range 5- 6 per cent. It is vitally important to know how fast the economy is growing and whether, as a nation, we are running an external surplus (repaying debts) or a deficit (running up debts). If you believed the headline growth numbers, it would be essential for the government to step heavily on the brakes in the 2017 budget. Even on the basis of the NNP number, the economy is close to capacity and the budget should give little away.


The distortions that affect the growth figures also affect the current account of the balance of payments – the difference between what we earn abroad and pay abroad. .

It is essential that the CSO develops a better set of statistical tools to tell us what is going on. They need to expand greatly on the very limited set of numbers they publish, separating out the foreign from the domestic sector of the economy. Only then will we, and the rest of the world, know what is actually going on in the Irish economy.