New GDP data sees ‘leprechaun economics’ morph into ‘step shift’

If you hadn’t noticed, we’re now referring to the explosive 26 per cent economic growth of last year, the rate that won us the “leprechaun economics” tag, as a “step shift”.

The neat little euphemism refers to the €40 billion bounce in gross domestic product (GDP) in 2015, which did little to change our material circumstances but highlighted a growing gap between the concepts of national income and output.

Initially blamed on a handful of multinationals transferring IP or aircraft leasing assets here, it is becoming increasingly apparent there is only one company with the firepower to screw up the accounts to this extent – Apple.

The "step shift" phrase was deployed several times on Wednesday by statisticians from the Central Statistics Office (CSO) as they grappled with another set of national accounts that posed more questions than it answered.

Growth

At first glance, Ireland’s headline rate of economic growth, which grew by 0.6 per cent in the second quarter and by 4.1 per cent year-on-year, appears to have reverted to a more stable trajectory.

However, the second quarter growth was weak in the context of the 2.1 per cent contraction that preceded it, and seemingly out of kilter with the acceleration in employment growth, recorded in the CSO’s latest quarterly national household survey.

Bubbling away beneath the surface, there were also big distortions in some of the secondary indicators. Net exports, the main engine of Ireland’s small, trade-oriented economy, contracted by 31.4 per cent, one of the biggest quarterly reversals on record. This was explained, in part at least, by a €9 billion investment in IP during the quarter, which contributed to an 11.8 per cent jump in imports. It’s not inconceivable, however, that the steep fall-off, which includes a marginal decline in exports, may be the initial rumblings of a Brexit-related slowdown in our export trade.

Another worrying metric was the 0.5 per cent decline in personal consumption, which traditionally forms the bulk of domestic demand.

This drop was blamed on the new pattern of car sales and a decline in the number of people travelling abroad – their foreign holiday spending is confusingly recorded as personal consumption in the national accounts – with the latter being linked to recent terrorist attacks.

Either way, the level of consumer spending is difficult to reconcile with the more robust retail sales data issued by the CSO on a monthly basis. The agency’s measure of services spending, which was down 1 per cent annually, is also difficult to juxtapose with buoyant jobs growth and rising wages.

Comparison

The anomalies around Irish growth, unprecedented even in global terms, have prompted the establishment of a high-level CSO/Central Bank committee to examine better ways of measuring growth, suggesting the distortionary effects of multinationals has become more than a headache for officials.

The group, to be chaired by Central Bank governor Philip Lane, will convene some time later this month or in early October, but it's unclear whether adopting a "bespoke measure of Irish national income", as some have suggested, is really a runner as it would fly in the face of international norms and preclude comparison with other countries.

On the upside, the CSO’s quarterly growth metrics point to an overall expansion in GDP for 2016 of about 4 per cent, not the “step shift” witnessed in 2015, but a welcome return to the real world for weary statisticians.