Written answers

Tuesday, 2 December 2014

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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191. To ask the Minister for Finance the effect of contract manufacturing on Ireland's exports in 2014; and the way his Department is calculating this effect and knock-on effects on growth and so on. [45930/14]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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The issue of 'contracted production' and its impact on the Irish national accounts has recently gained some public comment. This phenomenon has been under observation for some time by staff of my Department. Indeed, the Economic and Fiscal Outlook that accompanied Budget 2015 contained a box on the issue to which the Deputy may wish to refer if he requires a detailed explanation of the impact of contracted production:(). However, it is important to stress that the contribution of contracted production to growth cannot be calculated with precision with the publicly available data to hand.

It should be recalled that large movements in GDP relating to activities of the foreign-owned sector in Ireland are not new. Foreign-owned firms are generally large, high-turnover enterprises concentrated in certain sectors. As such firm-specific and product-specific devleopments can have a bearing on measured GDP.

Notwithstanding these developments relating to contracted production, there is no doubt that economic recovery has gained momentum this year and that it has broadened to include a recovery in domestic demand.  High-frequency data such as retail sales, industrial production and purchasing managers' indices (PMIs) are all in strong positive territory. Employment growth resumed in 2012 and the Live Register continues to fall month-on-month. This recovery has manifested itself in tax revenues which are expected to come in €1 billion (or 2.5 per cent) above original expectations.

Returning to the issue of contracted production, it should be recalled that it involves very little employment effect or second-round impact on the wider economy and complicates the task of forecasting net exports. As developments are sector-specific and product-specific they have the potential to unwind or accelerate with potentially large impacts on measured GDP. National accounts estimates for the third quarter of this year are due for publication in mid-December and will show the most recent developments in contracted production.

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