Dáil Éireann Debate, Tuesday - 21 May 2024
69. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which positive conclusions can be drawn from this country's economic performance when considered alongside other eurozone countries and all other European countries; if the methodology for the measurement of the economy here continues to be robust and accurate; and if he will make a statement on the matter. [22705/24]
View answer237. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which he remains satisfied that this economy continues to perform well when considered in the overall European context; and if he will make a statement on the matter. [22987/24]
View answerThese questions seek to ascertain the extent to which the Minister has confidence in the robustness of the performance of this jurisdiction's economy when compared to other eurozone countries and non-eurozone countries.
I propose to take Questions Nos. 69 and 237 together.
The economic performance across the EU and Ireland was somewhat subdued last year amid weak global trade and GDP growth. In 2023, GDP grew by a modest 0.4% in the euro area and EU, while Irish GDP recorded a contraction of 3.2%. GDP growth in the euro area and Ireland is projected to pick up this year, though remaining below historical growth rates. The European Commission is projecting euro area and Irish GDP growth of 0.8% and 1.2%, respectively, for this year.
There are no inaccuracies in the way that Irish GDP is calculated, and it is measured in the same way here as it is measured across all European countries under the European system of national accounts. However, as is well-documented, GDP is not a suitable measure to be used in assessing the living standards of Irish residents, and my Department has been proactive in highlighting this fact. Indeed, last year was a perfect case in point, with measures of domestic economic activity, such as modified domestic demand, MDD, consumer spending and employment all showing growth, and GDP recording a decline. This is why my Department and many other institutions use measures such as modified GNI, that is, GNI*, and MDD that strips out the main globalisation-related distortions from GDP.
My Department is forecasting MDD growth of 1.9% for this year and 2.3% next year. This is in line with European Commission projections of 1.7% and 2.4% MDD growth for 2024 and 2025 in its recently published spring forecasts. There remains significant uncertainty surrounding the outlook for the international economy, however, and Ireland, which is highly integrated into the international economy, is facing many of the same headwinds as our European peers. Although inflation continues to ease, there remains the risk of renewed energy shocks adding to inflationary pressures. An escalation of geopolitical tensions would also have negative implications for both Irish and European economic growth.
I thank the Minister for that reply. To what degree does he, as he obviously does, continue to monitor the cause or causes of inflation, whether imported or generated nationally? To what extent can measures be taken at this stage to identify those tendencies? I ask this particularly since it seems to be fashionable nowadays to say it is inflation and everybody knows it is inflation. We do know this, but the sources of inflation are not necessarily so readily identified. To what extent can the Minister monitor this aspect?
We monitor inflation at the headline level but also the components of inflation quite closely, as would be expected. Every time a publication is issued by the Central Statistics Office and Eurostat, it is examined by officials in my Department, who report to me, give me a summary of them and their interpretation of the underlying trends. Of course, there is a difference between the harmonised rate, which is the agreed methodology across the European Union, and the consumer price index. The main difference is the inclusion of interest rate changes in the latter. We monitor that very closely. What has been interesting to see has been the reduction in energy prices, especially at wholesale level. We are beginning to see this change pass through to the retail level, but households and businesses can, and should, expect further reductions in retail energy prices in the period ahead. This will come as a welcome relief for many of them. The main risks that we face in our economy are external in nature and these are pretty much broadly balanced. We are anticipating growth this year of approximately 2% in MDD. I will respond further in a moment.
In the context of previous experiences this country has had when criticised internationally on the basis of the system we were using to measure the economic forces and trends at work here, which were sometimes quite dismissive, with references to leprechaun economics and so on and so forth, is the Minister absolutely certain we can robustly withstand any criticism that might come from such quarters in future? I ask this question given that in the past several years we have tended to receive criticism concerning our taxation policy in respect of the 12.5% level of tax on corporation profits, as well as other aspects of our economic policies. We have been treated quite unfairly by some commentators who toured the globe to take action against a smaller country and economy that did not have the same clout as they did.
The truth is that GDP is measured in Ireland in exactly the same way as in every other European country, but because we have a very large multinational sector, we believe it is important to have other measures of the economy as well. This is why we have MDD and GNI* and we publish all this information regularly. The agreed international measure of economic performance, though, whether that be growth or contraction, is GDP. Those numbers, therefore, are published for Ireland alongside all the other member states of the European Union but we have consistently pointed out that sector-specific and even product-specific trends or changes can impact Irish GDP given its nature.
What is encouraging is to note that exports have rebounded. The direction of travel is consistent with a pick-up in goods exports, which grew by 8% in the first quarter of this year compared to the last quarter of 2023. The reduction in GDP last year was driven by the external environment and it was sector- and product-specific. We believe this impact has largely washed through the system at this stage and there is now again growth in exports. This is manifesting in the positive projection for GDP across this year.
Go raibh maith agat.
