Professor John McHale:

The revisions to GDP which occurred here are unique to us. Other countries have measurement issues associated with the rules, particularly measurement of the structural balance which depends on estimates of the output gap and the potential output growth of the economy. Everybody is struggling with these issues. Deputy Doherty has raised a very important point, which perhaps has not received enough attention. With regard to applying the fiscal rules, much of the focus has been on coming up with alternative measures to GDP, but from the point of view of the rules what really matters is how the estimates of the potential output of the economy, and therefore the output gap, will change as a result of the revisions.

Our view is that these revisions took place, but we do not see any additional evidence that the economy is overheating or underheating relative to what we thought it was before, so, at least to a first approximation, there really should not be any change in the measurement of the output gap as a result of these revisions. It would be very important, in terms of what the Department of Finance and the European Commission do, that whatever new estimates are made for potential output, and therefore the output gap that feeds into the rules, particularly through the measurement of the structural balance, do not change significantly, because that could really distort the application of the rules.