Dáil Éireann Debate, Tuesday - 24 July 2018
318. Deputy Michael McGrath asked the Minister for Finance the GDP for 2017; the portion of the GDP figure that is deemed to be as a result of contract manufacturing; and if he will make a statement on the matter. [34648/18]
Amharc ar fhreagraThe National Income and Expenditure results for 2017, published alongside data for Q1 2018, show that the economy continues to perform strongly. GDP increased by 9.1 per cent year-on-year in the first quarter. This follows growth of 7.2 per cent last year, the strongest in the EU.
While the headline GDP figures can be exaggerated in an Irish context due to statistical factors such as exports associated with contract manufacturing, other indicators such as labour market trends along with taxation receipts confirm the strength of the economy. For instance, employment increased by 2.9 per cent in the first quarter of 2018 year-on-year, the unemployment rate is now at 5.1 per cent as of June 2018 and tax receipts have increased by 5.4 per cent to end-June year-on-year.
One of the statistical distortions to the Irish national accounts relates to contract manufacturing. Contract manufacturing is a form of outsourcing where a company in Ireland engages a company abroad to manufacture products on its behalf (and vice versa). Crucially, 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.
In 2017, exports associated with contract manufacturing fell by €2.8 billion from €67.4 billion to €64.7 billion. Imports associated with contract manufacturing also fell by €2.8 billion from €8.4 billion to €5.6 billion. As a result, contract manufacturing had a negligible impact on growth in full year 2017 (contract manufacturing was a drag on growth in the first half of 2017 but inflated growth in the second half of last year).
In response to the effect of contract manufacturing and the other distortions arising from the globalised nature of the Irish economy, the CSO have produced an alternative measure of the size of the Irish economy, modified Gross National Income (or GNI*). In 2017, GNI* was €181.2 billion at current prices or 38 per cent below the level indicated by GDP.
As a consequence, Ireland’s debt to GDP ratio presents an overly benign view of our debt burden. When scaled by GNI*, our debt ratio was 111 per cent last year. This highlights the still elevated levels of debt in the Irish economy, and the importance of ensuring that the public finances continue to be managed in a prudent fashion.
