I propose to take Questions Nos. 154 and 210 together.
The Central Statistics Office (CSO) last week published national income and expenditure results for 2015. These figures indicate that real GDP grew by some 26 per cent last year. This is significantly stronger than the previous estimate of 7.8 per cent.
This substantial upward revision is largely related to the activities of a small number of large multinational firms and reflects a number of exceptional factors which have limited impact on actual activity in the Irish economy.
The main channels through which these factors affect Irish GDP figures include:
- The effect of 'contract manufacturing' where Irish headquartered multinationals contract the production of goods to third party companies abroad but these products are recorded in Ireland's trade balance;
- The relocation of intellectual property-related assets or patents to Ireland. Ceteris paribus, this will reduce the level of royalty imports and as result increase Irish GDP;
- An increase in new aircraft imports to Ireland for international leasing activities generating substantial fee income without significant employment effects.
It is important to note that these factors do not reflect activity levels we are seeing on the ground. Although these revisions have significantly boosted investment and net export growth, they do not have a direct bearing on employment and wealth creation for Irish citizens.
It is important to stress that whilst these headline GDP figures have clearly been distorted and are exaggerated in an Irish context, more concrete indicators of the underlying levels of economic activity point to a continuation of a now firmly-rooted recovery. Specifically, indicators such as consumer spending, tax trends and labour market developments all confirm that Ireland's economic fundamentals remain strong.
It is also important to stress that the figures published by the CSO are compiled in accordance with best international practice and statistical standards. They measure what they are supposed to measure. However, in a small, open and very globalised economy such as Ireland, it is clear that relevance of these figures as a metric by which underlying economic trends and changes in living standards can be assessed is considerably less than elsewhere.
With this in mind, the Central Statistics Office is to put together a group of experts to provide guidance on how a more relevant indicator could be produced and published alongside these figures in the future. My Department will be represented on this group.
In light of the exceptional nature of these growth figures I also wish to make clear that the Government will not formulate policy on the basis of these inflated figures. Rather, policy will continue to be designed on the basis of more normal growth rates in the region of 3½ to 4 per cent per annum over the coming years.
Irish GDP is volatile by comparative standards due to the small open nature of the Irish economy. The best way to mitigate risks associated with this volatility is through prudent management of the public finances and competiveness-oriented policies. That is what the Government will continue to do.