Multinationals send GDP figures to the fairies

A Department of Finance official didn't add any comment or subject line as he sent colleagues an email at 2.34pm on July 13th. He didn't need to.

The headline of an article he was forwarding, "Leprechaun Economics Earn Ireland Ridicule", published by financial news agency Bloomberg, said enough.

The Central Statistics Office's upward revision the previous day of Ireland's gross domestic product growth for 2015 to a staggering 26 per cent had triggered a barrage of headlines in financial news pages around the world. Comments from Nobel Prize-winning economist Paul Krugman that the sums were tantamount to the work of Irish fairies gained legs, in particular. Officials here have been on the back foot ever since.

Even though we learned this week that the International Monetary Fund sought an urgent call with Irish officials to discuss the figures, the folks in Washington had already all but decided at the time that the data was meaningless and wouldn't affect Irish policy recommendations in its annual review of the economy.

There is little doubt that the data is compiled along the lines of strict rules set out by Eurostat, the European statistics agency. And the CSO said on Friday that a mission from the EU authorities to Ireland next month is due to examine how Irish figures follow already "intensive discussions" and will amount to a "final verification of the data".

But there’s also little doubt that official Irish GDP figures, driven by the activities of multinationals operating in the country, are not fit for purpose. The country’s debt-to-GDP ratio fell automatically to below 80 per cent from previous estimates of 94 per cent. Our creditworthiness didn’t improve that dramatically.

A large part of the revision was down to the impact of multinationals based in Ireland contracting firms overseas to manufacture products for them.

Economist John Fitzgerald put it succinctly in The Irish Times on Friday: "The underlying economic activity behind the apparent shift in GDP takes place in China or other low-cost manufacturing countries – neither Ireland nor Europe has seen a real change in output, just a change in where the legal ownership of the output is located."

The CSO is calling a “high level” group of Irish economists together to discuss how best to provide insight and understanding of the economy as the models throw out mad results. They are due to report back some time in October.

But surely the conversation needs to start where the standards and models are set.