EXANTE for The Malta Business Weekly

EXANTE for The Malta Business Weekly


EXANTE's Communication Director Patrick O'Brien wrote an article for The Malta Business Weekly analysing and explaining the stunning growth of the Irish GDP in 2015. 

Ireland’s 'leprechaun economics' continues to stun financial analysts 

There was utter shock and confusion amongst analysts and journalists as they came to terms with the announcement by the Central Statastics Office in Dublin that Ireland had achieved growth of 26.3% in gross domestic product and 18.7% in gross national product in 2015. Even by the standards of the growth rate in the late 1990s, the 2015 numbers seem completely off the Richter scale, and interestingly at the presentation, the statistics office did not include the Irish growth rate in its international comparison slide.

The slide used did show however that Malta had recorded growth of more than 6%, which in itself is incredibly strong, but would be totally muted by the inclusion of Ireland.

So how did Ireland achieve this growth considering the country emerged from a €67 billion bailout from a troika of international creditors led by the International Monetary Fund only two years ago. What can we believe?

Everybody knows that the 26% plus growth rate recorded for 2015 may be a statistical fact, but in terms of reflecting what is actually going on it is clearly a fiction. But trying to pull apart the various different bits of the puzzle has been very difficult as information given by CSO is limited

In 2015 , over €300 billion of assets were transferred to Ireland , this amounts to €66,700 for each of its 4.5 million population. The figure is mostly explained by the open nature of Ireland’s economy and its attraction to US companies seeking access to a 12.5% tax rate.

A few companies moved productive assets to Ireland from abroad, leading to a jump in Ireland’s capital stock. We know, for example, that aircraft leasing company Aer- Cap moved the domicile of its fleet of aircraft into Ireland, which has a total value of over €35 billion.

Among other firms that have inverted to Ireland, mostly through acquisitions, are Perrigo Co. and Jazz Pharmaceuticals Plc. Corporations with assets overseas of €523 billion were headquartered in Ireland in 2014, up from €391 billion in 2013, according to the statistics office. Ireland as a nation is a very small economy and if they get a big increase in assets this is what happens, even a single tax change can turn Ireland’s ecomony into a growth leader overnight

Ireland's GDP growth rate since 1998

The fact is that in 2015, a number of corporate restructuring transactions occurred that involved, among other things, a number of companies moving intangible assets such as patents into Ireland, aircraft leasing companies moving their activities and the domiciling of companies to Ireland.

Simply put, there was a significant reclassification of balance sheets, with the net effect that the stock of capital assets in Ireland increased dramatically last year, and those capital assets generated activity that became part of Ireland's GDP.

It is utterly mad to suggest that its Ireland’s economy that expanded by over a quarter in size and became the 11th richest in the world. The underlying story is that, in the year to December 2015, total employment in the economy increased by 2.3%, consumer spending increased by 4.5% and total tax revenues expanded by 10.5% in 2015. These indicators describe an economy that experienced solid growth last year, but not the sort of real growth that official data are suggesting The Irish case is a admonitory tale for economists who like to discuss economic growth as a measure of policy makers' success. Even in bigger countries, the methods used to assess the economy's size are imperfect. They don't always reflect increases or drops in a nation's actual wealth or in its bona fide economic activities. The economies of many countries are grossly underestimated because of their large shadow sectors. Others, such as Ireland's in 2015, can be unintentionally inflated. Numbers lie, even when compiled with the best of intentions. Measures such as happiness may better describe the effect of economic policies than traditional GDP numbers.

But as with any other index, like GDP one must be cautious when using the figure to make judgments about the economic health of any nation.

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