Economists say it's 'almost impossible' to gauge the sustainability of Ireland's growth

The ESRI has called for a new method of calculating national accounts.

By TheJournal.ie Team

GAUGING THE PERFORMANCE of the Irish economy is “bedevilled” by difficulties with the national accounts, according to leading think tank the Economic and Social Research Institute (ESRI).

In a report today, it said the country’s GDP was expected to grow by 4.8% in 2018 after initial estimates that it expanded 7.8% last year.

But due to the figures being skewed by ”large transactions of a select number of firms”, the ESRI said that a “more comprehensive approach” for calculating economic growth was needed.

This need had become “all the more pressing” with several years of strong growth rates “thereby giving rise to the possibility of overheating in the domestic economy”, it said.

‘Strong growth’

Despite uncertainty around the figures, strong domestic consumption and investment coupled with favourable international conditions were the main drivers behind economic growth last year.

The ESRI said: “We also expect that these components will result in growth of approximately 3.9% in 2019. In preparing forecasts for 2019, we assume that a European Economic Agreement (EEA) will exist between the UK and the EU.”

The think tank previously forecast that a hard Brexit would increase the cost of living for all Irish households by up to 3.1%, leading to an annual increase in costs of €892 to €1,360 per household.

However the ESRI noted that it was likely last year’s high headline economic growth figure was “impacted by certain developments amongst a small number of multinational firms operating in the Irish jurisdiction”.

“Therefore, it is very difficult to assess from the national accounts what the rate of underlying activity in the Irish economy actually is,” it said.

“It is almost impossible to derive accurate estimates of sustainable economic growth based on the current set of national accounts.”

This gap in separating the activity of much bigger companies in Ireland requires a “more ambitious approach” to how we calculate the national accounts, the ESRI said.

Leprechaun economics

The issue was previously raised after the now-infamous “leprechaun economics” figures of 2015, when Ireland’s official GDP rose 26%.

David McNamara from Davy Research said in a research note that the problem lies with the standard for accounting national finances. He says it is not suitable for a small, open economy like Ireland.

“Clearly, the standard European national accounting methodology is not fit for purpose as an indicator of economic growth in an economy like Ireland at present,” he said.

Written by Sean Murray and posted on TheJournal.ie

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