Ireland will use a new yardstick to measure the health of its economy to account for its status as the European base for a number of major multinationals, something that has made a nonsense of conventional measures. Last year alone, growth in gross domestic product (GDP) was adjusted up to 26 percent from 7.8 percent after firms' capital assets were revalued.
When US economist Paul Krugman suggested the number was a fantasy, coining the term "leprechaun economics", the government sensed it might not be getting full credit for a rapid economic recovery admired around Europe. The new measure, "Adjusted Gross National Income" - or "GNI*" - will be phased in by the end of 2018 and exclude the effects of firms re-domiciling, or relocating or depreciating their capital assets, the Central Statistics Office (CSO) said on Friday.
"It is critically important to generate reliable measures of the aggregate size of the economy," a group of economists and academics, chaired by Irish Central Bank Governor Philip Lane, said in a series of recommendations. "It has long been recognised that GDP is an inadequate indicator for Ireland."
CSO Director General Padraig Dalton said Krugman's comment risked trivialising a complex issue, noting that Ireland was a case study for the impact of globalisation on economic statistics around the world.
Ireland has a population of only 4.8 million, about the same as the US state of Alabama, but is the European base for Google, Apple and other multinationals, not least because of its low corporate tax regime. The dramatic revisions of 2015 were largely the result of the relocation of entire balance sheets from outside the European Union.
At the stroke of a pen, they meant Ireland's proportional debt burden fell to 79 percent of GDP, below that of Belgium, France and Austria, rather than 94 percent as originally estimated. By other measures, Ireland's debt burden, which soared after the 2008 financial crisis, remains among the highest in the EU.
Lane said the new indicator would help with fiscal planning, assessing the sustainability of private and public debt stocks, and judging the appropriate level of credit in the economy.
His group also recommended that the CSO publish adjusted data on underlying investment and domestic demand as well as similarly-adjusted measures for exports and imports to provide more meaningful indicators.
Even if the official GDP figure for 2015 is misleading, a swathe of secondary numbers, from unemployment to retail sales and business surveys, have pointed to a sharp recovery and back up Ireland's record as the fastest growing economy in the European Union for the last three years. Economic growth in 2015 would probably have been of the order of 6 percent by the new GNI* measure, the CSO said.