Or at least that is what the national accounts tell us. The CSO have published the National Income and Expenditure Accounts for 2015. These show that real GDP expanded by 26.3 per cent in 2015 and real GNP grew by 18.7 per cent. Do these numbers mean anything? It is hard to know.
Looking at the expenditure approach the big real changes were in investment (+26.7%), exports (+34.4%) and imports (+21.7%).
In nominal terms, exports in 2015 were put at €317.2 billion, up from €219.8 billion in 2014. Exports minus imports was €81.2 billion compared to €34.6 billion in 2014. We would usually expect most of this to feed through to the outflow of factor payments but net factor income from abroad only went from –€29.7 billion in 2014 to –€53.2 billion in 2015. That means most of the improvement in net exports also contributed to GNP but the “gross” part of this seems to be important.
The reason is that there seems to be an awful lot happening on the asset side of the national accounts. The nominal provision for depreciation rose from €30.9 billion in 2014 to €61.6 billion in 2015. It looks like a large part of the increase in gross value added in 2015 of €60 billion went to cover the depreciation of assets.
The biggest source of the additional value added was in the Industry sector which rose 97.8 per cent in real terms over in the year (and in nominal terms rose €50 billion). The CSO don’t provide a sectoral breakdown for this (they usually do) but it is probably a safe guess that a large part of it is related to the chemical and pharmaceutical sector.
One explanation is that a number of sectors saw MNCs move intangible assets onshore. This increases gross value added in Ireland as there are no longer outbound royalty payments. There is also a once-off increase in investment when the asset moves here (but the growth effect of this is offset by the import of the asset).
It is also worth noting that the increase in value added isn’t necessarily related to goods manufactured in Ireland. The CSO’s External Trade data, which only include goods that physically leave Ireland, shows €111 billion of goods exports from Ireland in 2015. Goods exports in the national accounts are done on a different basis (where ownership rather than location matters) and show exports of €195 billion. A large part of the value added from these exports is accounted for in Ireland.
So we have a large increase in gross value added but this doesn’t fully feed through to increases in wages and/or profits. Non-agricultural wages and salaries rose from €67.7 billion in 2014 to €71.5 billion in 2015.
The domestic trading profits of companies rose from €52.3 billion in 2014 to €74.4 billion in 2015. This €22 billion increase roughly corresponds the increased outflow of net factor income. Profits before depreciation would be up by even more but a lot of that went against the fall in the value of the assets.
But even then the value on onshored assets can’t account for all of this. Most of the increase in investment can be attributed to research and development which in nominal terms rose from €9.6 billion in 2014 to €21.3 billion in 2015. It is likely that most of this increase is due to once-off purchases of intangible assets rather than ongoing expenditure on R&D.
There may also be impacts from the aircraft leasing sector. Although the investment figures show a small decrease in investment in transport equipment in 2015, a balance-sheet effect may have resulted in increased aircraft assets being accounted for in Ireland. Gross value added in aircraft leasing may be high but depreciation of the asset would again consume a lot of this.
The CSO highlighted this and slide 6 of their presentation on the figures shows that Ireland’s gross capital stock rose by about €300 billion in 2015, from €750 billion to €1,050 billion. Even with today’s inflated figures this corresponds to an increase in the gross capital stock equivalent to 120 per cent of GDP in just one year. Investment in 2015 was equivalent to just over 20 per cent of GDP so these balance-sheet effects impacted the capital stock to the tune of almost 100 per cent of GDP.
The best we can do to strip out all of this madness is probably to look at net national income which excludes the provision for depreciation from all assets and accounts for net factor income from abroad.
Net National Income at Market Prices grew by 6.5 per cent in 2015 which is probably somewhere around where “the Irish economy” grew at in 2015 rather than the 26.3 per cent that “the economy in Ireland” grew by.