Dáil Éireann Debate, Wednesday - 11 July 2018
100. Deputy Michael McGrath asked the Minister for Finance his views on whether there is a risk that contract manufacturing will have a similar effect on 2018 GDP figures as with 2017 GDP figures; and if he will make a statement on the matter. [30926/18]
View answerContract manufacturing is a form of outsourcing whereby an Irish-resident firm engages a company abroad to manufacture goods on its behalf (and vice versa). Crucially, for the purposes of calculating GDP in accordance with the internationally agreed standards (ESA 2010), the inputs used in the production process, including the valuable intellectual property rights, remain in the ownership of the Irish-based entity and no change of economic ownership is deemed to take place during the production process.
Putting it another way, the foreign-based contract manufacturer supplies a manufacturing service to the Irish-based company and the former never takes ownership of the product. When these goods are finally sold in a third country, a change of economic ownership is deemed to take place and the transaction is recorded as an export from the Irish-based entity for the purposes of GDP estimates. It is important to stress that while this activity inflates Ireland’s exports and GDP, it has almost no impact on Irish living standards as it generates little or no domestic activity/employment.
My Department is forecasting GDP growth of 5.6 per cent this year. This projection assumes that statistical factors such as exports associated with contract manufacturing boost the headline GDP figure this year. However, as noted in the Stability Programme Update 2018, statistical factors – including exports linked to contract manufacturing - could have a stronger than expected impact on GDP growth this year.
In general, high frequency indicators such as industrial production have been poor leading indicators for contract manufacturing in recent quarters. As a result, the initial impact of contract manufacturing on the GDP figures will only become evident when the preliminary figures for the first quarter of 2018 are published later this month.
