The latest national accounts from the Central Statistics Office show nothing as clearly as how difficult it is to get a handle on the overall economy from official data. This is no fault of the CSO – it is part of the ongoing story of the impact of the activities of major international companies on a small, open economy. So what should we conclude from the extraordinary ups and downs of the latest release, which covers 2023 and the first quarter of this year.
The multinational sector, overall, hit a speed bump last year as good exports fell sharply. This appears mainly due to a fallback in pharma exports following a surge during Covid-19. Multinationals also repatriated significantly less in profits to their international parents last year. These all lead to a 5.5 per cent drop in Gross Domestic Product (GDP) last year.
The shortcoming of the GDP measure and Ireland’s data are well known, however, affected in large by factors such as contract manufacturing – which are goods produced elsewhere but counted in Irish data as they are organised by Irish multinational subsidiaries. And there was what appears a once-off fall back in pharma exports from exceptional levels.
Netting multinational factors out, a measure inelegantly called Gross National Income star (GNI*) showed a 5 per cent rise for the year. Another measure of the domestic economy – modified domestic demand (MDD) – rose 2.6 per cent, well up from a previous CSO estimate. Both suggest decent growth last year, albeit at different levels. Goodbody economist Dermot O’Leary said in a note to clients that MDD is probably the “cleanest” figures and confirms the bounce-back of the domestic economy from Covid-19 was even stronger than had been thought.
This modified domestic demand figure was 1 per cent higher in the first quarter of this year than the previous three months, and 2.2 per cent up year on year. So this suggests that the domestic economy continues to grow at a decent pace into this year, fuelled by a strong labour market. According to O’Leary, “with household balance sheets in good shape, employment and earnings continuing to grow and inflation falling, further growth can be expected in the coming twelve months.”
The signs so far in 2024 are also of a revival in exports, which are up 7 per cent quarter-on-quarter. Services and goods exports are both contributing to the rise. Multinational profit repatriations also rose sharply during the quarter and a fall in imports of intellectual property (IP) to Ireland – the international right to patents, copyrights and licenses – by big firms is also evident. These IP assets are central to tax planning and the flow of money between Irish subsidiaries and their parents.
Overall the figures appear broadly positive, with the domestic economy looking solid and a revival in exports this year. The days of stellar GDP growth figures may be over, but they always had a limited link to the domestic economy. What the swings in this sector mean for corporate tax is another matter of course, but so far this year trends here have also been strong.
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