Measured Macroeconomic Performance
This post was written by John McHale
In a series of informative comments across recent threads, Michael Hennigan has raised important questions relating to the reliability of the recorded growth in key macroeconomic aggregates, and also the employment performance of internationally traded sector in general and the foreign-sector in particular. (See here for a useful summary from his Finfacts website). Although Michael watches these figures much more closely than I do, and so I hesitate to contradict him, I find it hard to share some of his concerns.
First a point of agreement: At roughly 100 percent of GDP, Irish exports are strongly influenced by the activities of multinationals operating in Ireland, and the numbers tell us little about value added and incomes in Ireland. Where I have difficulty following Michael is in his concerns about the reliability of Irish GNP and GDP figures. GNP excludes the profits of multinationals (and not just repatriated profits), and so should be immune from concerns over tax-driven transfer pricing. GDP excludes imports (including intermediate imports and royalties). Michael says the Irish exports are overstated by one third. If he has a chance, he might explain this in more detail, and also how he sees it affecting measured GNP and GDP given the exclusions just noted.
Michael also notes that employment in the foreign-owned sector has fallen from 166,000 in 2000 to 144,000 in 2011. This fall is certainly very regrettable. But it occurred during a massive bubble-driven, structural mal-adjustment of the economy. Given the extent to which the bubble affected the allocation of resources, I am surprised the damage done to the traded sector was not much greater. Part of the answer would appear to be the highly elastic labour supply response – notably through immigration – which allowed the construction and other non-internationally traded sectors to expand, while limiting the damage to the traded sector.
I do share Michael’s concern over risks around the projected return to robust growth after 2013. But my main concern is a prolonged “balance-sheet recession”—and not just in Ireland. While Michael’s description of the nature of much multinational activity in Ireland seems accurate, I find it hard to share his concerns about its implications for measured Irish growth performance. I am ready to be corrected.