The statistical distortions created by the impact on the Irish National Accounts of the global assets and activities of a handful of large multinational corporations have now become so large as to make a mockery of conventional uses of Irish GDP. I suggest four preliminary remarks to help overcome some of the challenges facing observers of the Irish macroeconomy.
- GNP is now almost as unhelpful an aggregate economic measure for Ireland as GDP. (This is due to a change in the way in which some globalized countries are managing their affairs, with some significant global headquarters now being located to Ireland)
Ratios to GDP are now almost meaningless for Ireland in most contexts. They need to be supplemented by alternative purpose-constructed ratios for specific uses, as the Irish Fiscal Advisory Council already proposed a few years ago with its weighted average of GDP and GNP for assessing fiscal sustainability – though that particular solution will no longer work well for the reason mentioned in point 1.
International statistical conventions should be revisited to help the interpretation of the data in a world where huge MNCs, legally controlled from small jurisdictions are moving assets around on this scale.
One natural approach is to apply the thinking underlying the current statistical treatment of financial intermediaries to this kind of MNC.
(One aircraft leasing firm that publishes its accounts has just 164 employees in Ireland – and just 221 elsewhere – but a balance sheet total of $44 billion, the bulk in the form of aircraft that are operated by other firms. I do not know how the statisticians classify it, but in economic terms it looks much more like a financial firm than a non-financial firm).
Failing international convention changes, it may be necessary to envisage a parallel set of accounts being also prepared for the Irish economy.
- Some of the big aggregates of the national accounts are largely unaffected by the distortions. For instance, the figures for personal expenditure on consumer goods and services and for government expenditure on goods and services. These two series can still be used to get a more realistic picture of the recovery as it is felt in public and private consumption. But they should not be expressed as a percentage of GDP, but instead in real constant price terms, seasonally adjusted.
Thus, by the first quarter of 2016, personal expenditure was still just below its quarterly peak of eight years ago; it has been growing for twelve quarters since the trough at an annual average rate of 3.5%.
Government spending on goods and services (i.e. not including transfer payments) in the first quarter of 2016 was still six per cent below peak but has grown by 4.0% per annum on average in those twelve quarters.
Personal disposable income (a much under-used series; up to date figures not available yet); other elements of the government finances; building and construction investment are other series that remain valid and usable for understanding the relevant parts of the economy.
How do these recent growth rates in consumer and government spending compare with those registered in the decade before the bust? Much lower of course: consumer spending rose by an average of 5.6% per annum 1998-2008, and government spending by 4.9%. Recovery yes: boom no.