Dáil Éireann Debate, Thursday - 5 March 2020
100. Deputy Michael McGrath asked the Minister for Finance the exposure GDP faces from contract manufacturing particularly with regard to potential trade disruption as a result of the Covid-19 outbreak; the proportion of goods that are manufactured in China but booked here using the contract manufacturing method; the way in which it impacts on GDP; and if he will make a statement on the matter. [3746/20]
View answerExports from Ireland under 'contract manufacturing' arrangements account for approximately one-third of Irish exports, amounting to just over €68 billion in 2018 (latest available full-year data).
Contract manufacturing is a form of outsourcing whereby an Irish-resident firm engages a company abroad to manufacture goods on its behalf (and vice versa). Despite having no actual production or associated employment in Ireland, this activity is recorded as production in Ireland under the global national accounting framework (which, in the European Union, is referred to as the European System of Accounts 2010, ESA2010). When the products are subsequently exported, this is treated as an Irish export.
These activities artificially inflate Irish GDP. GNI*, however, is not inflated by contract manufacturing as this measurement adjusts for foreign-owned intellectual property located in Ireland (the main domestic input into contract manufacturing).
A large proportion of Irish-outsourced contract manufacturing takes place in China which, of course, was the epicentre of the COVID-19 outbreak and where significant disruptions to production have taken place.
Given these disruptions, it is certainly possible that Irish production and exports associated with contract manufacturing could be affected. If this was to happen, headline GDP would be adversely affected although there would be no impact on GNI* or employment in a direct sense. If the lost output and sales are not recovered by year-end, it is possible that corporation tax receipts could be affected.
The extent of the impact on the economy will depend on the duration of the disruptions to production in China (and elsewhere) caused by COVID-19. My Department will continue to monitor developments and advise accordingly.
