Thursday, 28 November 2019
Department of Finance
I propose to take Questions Nos. 77 and 78 together.
In July 2019, the Central Statistics Office (CSO) published the national income and expenditure (NIE) results for 2018. The NIE contains the most recent series for gross domestic product (GDP) and related economic statistics for Ireland. The year-on-year percentage growth rates for GDP in constant (i.e. inflation adjusted) and current prices are presented in the table.
|GDP (constant prices)||-4.5||8.1||8.2|
|GDP (current prices)||-4.8||9.4||9.1|
The contraction in GDP in 2008 represents the onset of both the domestic and global recession. In particular, the negative growth in GDP is attributed to the negative growth in gross fixed capital formation (i.e. investment) and exports along with moderating private consumer spending in 2008 relative to 2007.
More recently, GDP has become increasingly distorted by the globalised activities of a small number of large multinational firms which have limited impact on actual activity in the Irish economy.
The GDP numbers in 2017 and 2018 are affected by these activities which include:
- Activity in the aircraft leasing sector which involves substantial investment in portfolios of aircraft for international leasing and which generate substantial fee income (i.e. services exports) without significant employment effects.
- The relocation of intellectual property (IP) related assets or patents to Ireland.
- The effect of 'contract manufacturing' whereby multinationals located in Ireland contract a party located abroad to produce and supply goods on their behalf to another party. Throughout this process the Irish firm retains economic ownership of the goods, such that sales of these products are recorded as exports in Ireland's national accounts.
While the high GDP growth rates recorded in 2017 and 2018 are impacted by a relatively small number of very large multinational firms who engage in these activities, the GDP figures are compiled in accordance with best international practice and statistical standards. However, as Ireland is a small, open and highly globalised economy, the relevance of GDP as a metric by which underlying economic trends and changes in living standards can be assessed is considerably less than elsewhere.
To address this, the CSO publishes additional series, including modified gross national income (GNI*) and modified domestic demand, which are more closely related to the domestic economy. In particular, modified domestic demand - that is domestic demand excluding investment in foreign owned IP and leased aircraft - increased by 2.8 and 4.8 per cent in 2017 and 2018 respectively, pointing to robust growth in the domestic economy.