The basic yardstick of economic growth globally, GDP (gross domestic product), has been rightly maligned for failing to incorporate the huge impact economies and their basic components, companies and consumers, wreak on the environment.
The measure has been further undermined by the shifting sands of multinational business arrangements and the increasing intangibility of assets such as patents and intellectual property.
Ireland’s national accounts are perhaps the biggest victim of the latter. GDP here has become increasingly removed from domestic economic conditions and is now largely governed by the activity of multinationals.
Despite being at full employment and experiencing increased rates of consumption, the Irish economy entered a technical recession earlier this year on the back of two consecutive quarters of negative growth, something that was entirely out of sync with domestic conditions.
The economy contracted by 2.8 per cent in terms of gross domestic product during the first three months of the year as activity within the multinational sector shrunk. This, combined with a marginal contraction in GDP in the last quarter of last year, meant the growth trend here met the definition of a recession.
The CSO’s figures show modified domestic demand, a more accurate measure of domestic economic activity, rose by 1 per cent while personal spending on goods and services, the main driver of domestic growth, increased by 0.9 per cent
A flash estimate of GDP growth in the second quarter published by the Central Statistics Office last month suggested the economy had rebounded by 3.3 per cent. However, yesterday the agency revised this back down to just 0.5 per cent on the back of falling multinational exports linked to falling global demand.
“As has been well documented, multinational production in Ireland is extremely volatile and, given the outsized role the multinational sector plays in our economy, GDP is clearly not a useful measure of domestic living standards,” Minister for Finance Michael McGrath said.
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“Externally, growth is slowing in some of our main trading partners, and this could have knock-on implications for Irish exports,” he said.
The CSO’s figures show modified domestic demand, a more accurate measure of domestic economic activity, rose by 1 per cent while personal spending on goods and services, the main driver of domestic growth, increased by 0.9 per cent. These better reflect the real feel of the Irish economy. Growing, but at a reduced rate.
