The Irish economy grew by a whopping 26 per cent last year – but economists are not impressed
The Irish economy grew by an impressive 26 per cent last year, soaring past estimates of 7.8 per cent gross domestic product (GDP) growth – but only after the capital stocks of a number of companies that relocated to the country were included in the state's balance sheet.
Revised figures from Ireland's Central Statistics Office (CSO) show GDP was up 26.3 per cent in 2015 compared to 2014, with gross national product up 18.7 per cent.
However, the massive growth in GDP was driven mainly by a number of aircraft purchases and the reclassifications of company balance sheets – which probably arose out of so-called inversion deals, in which a firm makes an acquisition in order to re-domicile in Ireland and avail of the lower corporation tax.
"What happens here is that an entire balance sheet of a company relocating to Ireland, from somewhere else, is included in our capital stocks or our international investment position," said Michael Connolly, a senior statistician at the CSO.
"The very dramatic increase has increased the capacity for production in the economy and impacts the accounts for 2015 in the increase of exports and imports… Employment has not changed greatly as a result."
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One major 'inversion' deal that almost came to pass earlier this year was Pfizer's proposed takeover of Dublin-based Allergan – the combination was scrapped after the US Treasury introduced new rules to prevent companies moving their tax dealings across the Atlantic.
Jack Allen at Capital Economics said the Irish data had "gone haywire", adding: "Given the unpredictability of the Irish data, it is difficult to come up with a firm forecast for GDP. The big picture is that we think growth in domestic activity will slow."
Allen said weaker foreign demand "seems to have weighed on exports – the manufacturing export orders balance of the PMI survey has fallen sharply this year", and pointed out that Ireland is also heavily exposed to any fallout from the UK’s vote for Brexit.
And Ulster Bank chief economist Simon Barry said the new GDP numbers "are just not meaningful if the aim of the game is to truly understand what is happening in the economy". Instead, he said, the fact the CSO posted the the strongest consumer spending figures in many years gave a more accurate picture of Ireland's economic performance.
The new GDP figures mean Irish government debt is now 80 per cent of GDP – the nation's debt only recently fell below 100 per cent of GDP, for the first time since 2011. "This improvement is not just a statistical illusion, as the new estimate of GDP reflects an increase in taxable income for the government," Allen commented.
"It might therefore allow the government to ease the pace of fiscal tightening."
Commenting on the revised GDP figures, Ireland's finance minister Michael Noonan said: "Ireland is now in a position where we borrow relatively small amounts at very low rates which ensure that investment is made in delivering more than the bare minimum of services to our citizens. These are all evidence of a country growing in real terms."