Our GDP (nerdy) December 11, 2016Posted by Tomboktu in Economy.
So, on Friday the Central Statistics Office reported that Ireland’s GDP grew by 4% in the third quarter of 2016. That’s remarkably high. Growth for a full year of 4% would be good, for a quarter it’s crazy.
Certainly, when the transactions that make up GDP are fed into the formula, the result was shown to grow by 4% in the three months from July to September. (It’s a first cut and will almost certainly change a bit later as more data is gathered and all of it is checked, and refined, but the scale of it — 4% in a single quarter — is pretty much what the revised data will show.)While GDP grew by 4% in the quarter, ‘overall total domestic demand declined by 1.8%’.
It may be mad, but it is what the CSO is legally required to report under EU rules. The source is accounting rules that lead to transactions undertaken by multinational companies in Ireland being ‘booked’ here — to reduce their tax bill.
This is not the first time that our official GDP data produced crazy figures. The reported growth for 2015 was a whopping 26%. It seems that Eurostat ran its eye over the data that produced that piece of madness, and then opined that all was in order.
In fairness to the CSO, it has been working on producing a better indicator of the size of the Irish economy. That will be useful for information purposes. But GDP is more than the standard figure used for “oh, aren’t we doing well/poorly” comparisons. It has legal implications: under EU law, the maximum permitted size of our debt and our deficit are tied to the size of our GDP. So too is the amount of our contribution to the EU budget (on top of the slice of VAT that is regarded as the EU’s ‘own resources’). The higher GDP figure in 2015 did ease the pressure on the state to make cuts in public spending, but if a surge like 26% can occur, there is a risk that it can work the other way if there is another shift in the pressures on multinational firms tax games that results in an abrupt drop in GDP.
And 4% in one quarter tells us that multinationals are still playing tax games with us.