CSO acknowledges ‘difficulties’ with growth estimates

The Central Statistics Office (CSO) has acknowledged difficulties in understanding developments in the Irish economy because of the distorting impact of multinational transactions on headline indicators.

However, it insists it is addressing the problem through the adoption of several new indicators which factor in “the impact of globalisation”.

The agency was responding to a call from the Economic and Social Research Institute (ESRI) for a comprehensive overhaul of how the national accounts are prepared, and for a parallel set of accounts to be published which would weed out the statistical noise coming from multinationals.

Following the 26 per cent jump in Irish gross domestic product (GDP) in 2015, a figure that was derided internationally as "leprechaun economics", the CSO convened a special review group, chaired by Central Bank governor Philip Lane and including the ESRI, to make recommendations on providing greater insight into underlying developments in the Irish economy.

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On foot of the recommendations of this group, the CSO created two new metrics – “ modified total domestic demand”, which measures growth in domestic demand, and “modified gross national income (GNI*)”, an alternative indicator, designed to measure the level of the Irish economy.

The level of GNI* was estimated to be €189 billion in 2016 in contrast to the conventional GDP metric, which was €276 billion, suggesting the State’s economy may be a third smaller than previously thought.

International bodies

The CSO said that for the purposes of debt sustainability assessments, ratios of debt as a proportion of GNI* have been adopted by international bodies such as the International Monetary Fund (IMF), the European Commission and credit ratings agencies as an alternative to debt relative to GDP.

"Ultimately this is a work in progress, and CSO continues to develop more indicators and presentations to assist our stakeholders in understanding the underlying or purely domestic developments in the economy," said senior CSO statistician Michael Connolly.

“We also listen carefully to any concerns or suggestions of our stakeholders whether it’s at our quarterly press conferences that introduce the latest set of economic results, or, indeed, at our liaison groups where we regularly meet our key users.”

In its latest economic commentary the ESRI said it had become “practically impossible” to gauge economic activity here or work out an estimate of sustainable growth with the current set of indicators.

The think tank said headline growth and its components were being distorted by large transactions involving a select number of firms.