Leprechaun economics, a term coined by economist Paul Krugman, is alive and well and is warping EU statistics.
reland’s investment and trade figures were so skewed at the end of last year that they are being left out of some European averages.
They also led the European Commission to revise down its 2021 growth estimate for Ireland by almost a point, from 14.6pc to 13.7pc.
Ireland “continues to display very volatile investment dynamics”, the Commission said in its winter economic forecast last week.
Including Ireland, total investment (gross fixed capital formation) in the EU fell by 8.2pc in the third quarter of last year (compared to 2019). Excluding Ireland, investment rose by 0.2pc, recovering from the pandemic.
In its forecast document, the EU executive also left Irish data out of some of its quarterly aggregates on consumption, exports and industrial production.
Behind the scenes, EU officials are getting increasingly concerned about how the large swings are affecting overall data, especially for the 19-member single currency zone.
“It’s getting to a stage where it’s non-trivial now, the impact it’s having,” said Kieran McQuinn, a research professor with the Economic and Social Research Institute (ESRI). “It’s resulted in a situation where the euro area data has been distorted by the Irish data.”
Volatility in Irish data is not a new story. In 2016, the Central Statistics Office (CSO) revised up Ireland’s 2015 gross domestic product (GDP) to 26.3pc following a massive influx of multinational patents and licenses, which were granted favourable tax treatment.
Fianna Fáil’s then-finance spokesman, Michael McGrath, now the public expenditure minister, said the swing “could draw unwanted attention to Ireland” and affect “the reputation of the State as a place with a stable business environment”.
The latest shift in quarterly data is partly due to the pandemic, with a massive upswing in 2020 coming back down in 2021. But it’s also due to changes in how and where multinationals produce goods and deliver services.
“Multinationals are producing more and more out of Ireland, everything from food to pharmaceuticals to ICT, so you get all this noise (on the data),” said Christopher Sibley, the CSO’s head of national accounts integration. “But the annual figures are very stable.”
The CSO and the Government use ‘modified domestic demand’ and ‘adjusted gross national income’ (GNI*) – which strip out patents and aircraft leasing – to get a better picture of the domestic economy,
In the real world, last year’s data swings are having little effect, with record job creation in the multinational and domestic sectors last year, and goods exports surging to €165bn in value, their highest ever level.
“Despite the volatility in some indicators, the overall story has been quite positive. It’s real growth,” said Ibec economist Hazel Ahern-Flynn.
But statistics do matter, as Ireland’s EU budget obligations and subsidies are based on GDP and GNI. Higher GDP could mean lower-than-expected grants from the €750bn pandemic recovery fund, while lower GDP could net the Government more.
Volatility is not going away, says the ESRI’s Mr McQuinn, even when Ireland brings in a 15pc minimum corporate tax rate.
“A lot of it is to do with the various different taxation measures, transactions by multinational firms and profit shifting. These transactions are ongoing and, unfortunately, will continue to have a distortionary impact.”