Pearse Doherty (Donegal South West, Sinn Fein)
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24. To ask the Minister for Finance his views on the Irish Fiscal Advisory Council report and, in particular, its concerns regarding the potential for a distortion in growth figures. [45943/14]

Michael Noonan (Limerick City, Fine Gael)
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I note the views expressed by the Irish Fiscal Advisory Council in its recent Fiscal Assessment Report and welcome its assessment that targeting a deficit of 2.7 per cent of GDP in 2015 is considered conducive to prudent economic and budgetary management.

With regard to the Council's assertion that Budget 2015 represents a 'missed opportunity' and further consolidation should have been  implemented, the Government's overarching fiscal goal has always been to reach a deficit below 3 per cent of GDP in 2015.  On the basis of Budget forecasts, this will be achieved.  While consolidation would have improved the headline deficit figure, the Government has a number of other issues to consider such as the need to safeguard the economic recovery and preserve social cohesion.

Chapter 2 of the recent report highlights the issue of contracted manufacturing. In brief, the impact of contracted manufacturing has been to boost recorded GDP in the first half of this year. 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 detailed explanation of the issue  to which I would refer the Deputy if he requires a detailed explanation:.

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 in are generally large, high-turnover enterprises concentrated in certain sectors and 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- and product-specific they have the potential to unwind or accelerate with potentially large impacts on measured GDP.