Central Bank – Revisiting the 26% Growth Debate

Readers might be interested in the first quarterly central bank bulletin of 2017.

Unsurprisingly (and importantly) the bulletin focuses on the downside risks to the economy associated with Brexit, which are well worth reading.

But something else caught my attention whilst reading the piece. They briefly return to the 26% growth rate and conclude:

the large and increasing share of intangible assets, mainly held by multinational firms, and the assets of Irish based aircraft leasing firms can use headline investment figures to diverge from underlying investment trends.

This would imply, officially at least, that the role played by contract manufacturing, intangible assets and aircraft leasing are recognised as the core determinants behind the 26% growth rate, and leprechaun economics?

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By Aidan Regan

I'm an Assistant Professor at the School of Politics and International Relations, University College Dublin (UCD), and Director of the Dublin European Research Institute (DEI). My research is primarily focused on comparative and international political economy.

7 replies on “Central Bank – Revisiting the 26% Growth Debate”

“This would imply, officially at least, that the role played by contract manufacturing, intangible assets and aircraft leasing are recognised as the core determinants behind the 26% growth rate, and leprechaun economics?”

No, I don’t think you can assume the Central Bank are saying that those three things shared the ‘blame’ for the 26% figure. They are given as examples, but there is no attribution of the 26% between them. The statement you draw our attention to would not be inconsistent with just one of those three, on this occasion, being almost completely responsible.

Does anyone know which ‘intangible assets’ [especially licensing, trademarks and patents] were transferred here, breakdown between them, and which companies did so?

Do Revenue even know?

Due to odious constraints within Grimms’ SGP, these [incorrectly] impact on investment by this state ‘allowed’ by our masters and mistresses in Berlin as well as understating the REAL debt/gd(n)p ratio.

A lot of ‘can’s in that extract copied and pasted from the report. It’s a bit worrying when even the Central Bank can’t explain GNP/GDP fluctuations. What are all their economist doing there every day? It would probably be better for them simply to state that as a very open trading economy Ireland WILL tend to have frequent GNP/GDP fluctuations.

Although, in the article about “Aircraft Leasing in Ireland” (on page 66 of the Quarterly) it states:

“…the aircraft leasing sector was not the predominant contributor to recent revisions in Irish macroeconomic statistics…”

While this week’s Economist says:

“Official GDP growth of 26% in 2015 was largely the result of lessors buying so many new planes; the rest of the economy probably grew only by about 5%.”


Chart No. 1 on p9 which shows %Change [in Contributions to GDP] for the years 2008 thru 3Q2016 (est). Look at the changes in Consumption (likely to be the least unreliable estimate of GDP); it was -5% in 2009; +2% in 2015 and is est. at 1.5% for 2016. You really need to have the raw data for the different categories of consumptions (goods + services) to see how each is contributing to the whole. And domestic debts (vehicle loans; mortgages; cards, etc.) have not increased.

The true value of Irish GDP cannot be determined – but you could estimate it: If’n your input data is reliable – and you do actually understand that your final, single value estimate, cannot be less unreliable than your least unreliable input datum variable. So, just how reliable is that final estimate of our GDP (ie: closeness to the true value)? Or does it actually matter anymore?

If our actual GDP rate-of-growth value is 1.5% (plus-or-minus 1.5%) then that’s either a barely sufficient rate-of-growth to re-float the MV Ireland – or to leave us stuck fast on the beach.

The contribution each component of expenditure makes to the change in GDP is perhaps the easies way to explain annual growth. In 2015 personal consumption rose by 4.5% but it accounts for less than half of GDP so its contribution was 2 percentage points. Government consumption added virtually nothing , with stock building contributing 0.6 percentage points. Investment rose by just under 33%, so contributing 6.7 percentage points. Within the latter component intangibles went up by 100%, so it alone contributed 5.9 percentage points.
So on domestic demand alone growth would have been 9.3% but some of that includes imports, including probably all spending on intangibles. The contribution of imports was -20.8 percentage points but that was swamped by exports, contributing 39.1 pp. In other words net exports boosted 2015 GDP by over 18 percentage points .
So the issue is how much of that export growth is ‘real’, given that exports now include production abroad for export by ‘Irish’ companies. Of course should a few of these companies decide to move elsewhere in the future, Irish exports could tumble.

@ Dan McLaughlin

The overseas “contract manufacturing” tax racket has only appeared in recent years and it’s surprising that the issue receives so little attention.

In 2015 custom tracked data for goods exports showed that exports and imports were valued at €112bn and €70bn.

Balance of Payments data show goods exports at €144bn and imports at €79bn.

Prior to the popularity of this tax dodge, the difference in export values was typically €4 to €5bn related to double-counting.

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