Ireland’s Growth and the Blarney Stone

I have had more than my fair share of derision on this site for suggesting that there’s something a tad fishy about Ireland’s export numbers – and for suggesting that some people in Dublin are realising, at last, that Brexit might just be terrible for Ireland (and very good for Northern Ireland).

I had hinted in this article that there’s an awful lot of pharma moving between Ireland and Antwerp and Ireland the USA. Most seems to be something to do with big pharmaceutical companies setting up shop in the EU’s very own corporate tax haven. I also argued that core, indigenous exporting from Ireland to the UK (or through the UK to the continental EU) is likely to be hurt by Ireland’s sudden isolation from its most important markets.

But now there are also some questions being asked about Ireland’s headline growth rates – rates that seem to stretch credulity. If these growth rates – badges of honour to show Ireland’s shining success in the EU – are flawed, what does this say about Ireland’s prospects in a post-Brexit EU?

In a recent article by Victor Duggan the economist highlights the incredulity shown by others to Ireland’s headline growth rates. For example, Paul Krugman, the NY Times star-Economist, described Ireland’s 2015 headline growth rate of 26pc as ‘leprechaun economics’. Another Economist, Jim Power, described the number thus: “There’s clearly a lot of balance sheet accounting transactions going on that are seriously distorting what is happening in the economy.”

Duggan argues that part of the reason the GDP numbers are so high is because of the bizarre way huge FDI wins (e.g. big pharma companies setting up shop in Ireland) are reported in the official numbers:

Through an accounting and statistical sleight of hand, this is recorded as an investment in Ireland, but often also as an import of intellectual property from the multinational’s previous home country.

Thus, little or no cash may change hands. Even if some jobs are created in the host country, these pale into insignificance compared to the amount of money in play. This is not productive investment as we conventionally understand it.

The over-stating of growth (and investment) also allows the government to more easily achieve its deficit targets, thereby reducing the need for austerity programmes – and letting the public spending tap to be turned on again.

Clearly the Irish economy has underlying growth but the fact that questions are being asked about the official numbers may also result in some questions being asked about Ireland’s draconian personal taxation rates and public sector wage inflation. It may be time to cut the Blarney and focus again on some fundamentals. A good starting point might be how Ireland will cope in a post-Brexit EU and what options it may need to consider to hang on to any growth at all.

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  • Jollyraj

    Hmmm… actually not as much as you’d think. Many, many, many Europeans speak at least a second language well (sometimes a third and even a fourth) – most commonly English. The advantage we in the UK and the people of Ireland have is squandered somewhat by a very, very common inability (or more accurately unwillingness) to learn a second language.

    And, no, Irish language counts for nothing on that score since it does nothing to help communication with other Europeans (and even precious little to aid communication with Irish people).

  • Neil

    Yep. And yet unemployment is low (especially considering how few jobs there are in rural parts of Ireland), and the jobs that are there pay well, and are well taxed. Makes me think this austerity nonsense and squeezing the poor and disabled is pointless.

  • the moviegoer

    Reducing our traditional ties with England will be a great boost to language learning in Ireland which is long overdue. The Anglosphere is great but it is ridiculously dispersed.

  • Old Mortality

    ‘….a massive headache – especially as the contributions Ireland make towards the EU are based on GDP, Ireland pays in more than it should…’
    Look on the bright side: Brussels might put a stop to the tax arrangements which cause these anomalies and lead a ‘liberal’ like Paul Krugman to utter a foul racist slur.

  • Old Mortality

    ‘The UK accounts for 15% of exports, down from over 50% and falling fast.’
    Can you take Irish trade statistics at face value when large multinationals divert sales there for tax reasons?

  • Old Mortality

    Dublin may well attract more back-office jobs but you can be sure that the ‘masters of the universe’, and especially their wives wouldn’t tolerate living there.

  • Old Mortality

    I heard an SNP MSP describe the Remain majority in Scotland as overwhelming which is fairly typical of the exaggeration. Just remember that in neither place did Remain manage to attract the support of 50% of registered voters. The same could be said of the national result, of course. Completely inconclusive everywhere.
    SF and the SNP are rather pleased with the unexpected opportunity to make constitutional mischief. At least the SNP bothered to campaign for Remain.

  • Deeman

    Chris, it is. Shame SF and SDLP are not able to start explaining the benefits! Waiting on FF to do that for them perhaps?

  • hgreen

    That maybe true. However the economy is built on the have nots not the have yachts.

  • Roger

    Yes. Let’s spend more and up marginal tax yet further.
    Unemployment low? Cooked books. Unemployment s narrow tag. Better question, how many depend on social welfare?

  • NMS

    Well done Jeff, you have provoked some discussion.

    I agree with you that there is a degree of inflation around the export figures. However Vic Duggan’s comments only refer to physical exports & he has a reasonable point around Pharma. The Antwerp connection is because of entrepôt activity, which has been that city’s role since medieval times. Much UK “exports” to Ireland are similar, product imported by a main distributor and then re-exported to Ireland without any improvement. In that sense, UK exports to Ireland are also substantially overstated.

    However most recent Irish economic growth, while derived from MNC economic activity, has not been in physical goods, rather in electronic services. The value of these service based exports has grown exponentially in recent years. Also since Jan 2015, sales previously routed through Luxembourg are now made directly from Ireland. The reason being EU VAT rules came into effect changing the place of supply in respect of all supplies of telecommunications, broadcasting and electronic (TBE) services to consumers from the place where the supplier is located to the place where the consumer resides. From an answer received to a parliamentary question by Róisín Shortall http://tinyurl.com/jrtgory, it appears about 3%+ has been added to Irish GDP & about 4% to GNP by that change alone. This excludes increasing electronic sales to business.

  • ted hagan

    English Tory sneers at Ireland, (with Blarney stone and leprechaun references included).
    Litlle changes down the centuries.

  • NMS

    While the unemployment rate has fallen, the employment rate remains one of the lowest in the EU, far below that of the UK or similar sized small EU countries. One of the many contradictions of the Irish economy!

  • NMS

    Yes, that is the key point, the employment rate remains very low. Ireland is not a low (Income) tax country. It is however a country with very low Social Insurance charges by EU standards, very low property tax charges and issues around charging for utilities.

    The overall take by the State is very low by European standards, but dependence on Income tax is higher than normal. This becomes an issue when you have a low employment rate & comparatively high tax thresholds.

  • Karl

    Employment rate in Ireland for 2015 was 68.7%. EU (28) average was 70%.

    There are 10 countries with a lower rate.

    Slovakia, Belgium Bulgaria are lower. Hungary and Slovenia are less than 1% more.

    Participation rates peaked in 2007 at 73.8 and were at their lowest at 63.7% in 2012. If the rate of increase continues it is due to match the previous rate and exceed the EU average by 2022.

  • Fear Éireannach

    This shows room for further growth. The UK has high participation (not a bad thing in itself), but modest productivity rates.

  • Jollyraj

    Ah yes…. the evil Brits, once again, clearly to blame. If it wasn’t for the tyranny, yet again, of the jackboot unionists and orange kkkulture in the failed statelets then the ever-oppressed Irish wouldn’t have been too lazy to learn French, German and Spanish.

    Yegads… I’d nearly swear there are Irish Republicans out there who can’t stub their toe without hopping round and shouting ‘RUC brutality!!’ to anyone who’ll listen.

  • the moviegoer

    Not sure how you got that out of what I wrote but how and ever. Culturally the fact Irish emigrants go to Australia and Canada instead of Germany and France causes a lot of hassle. It would be good to reduce that tendency and forge links closer to home.

  • Jollyraj

    Granted, Australia and Canada are long, costly tickets back to see loved ones – but I’ve no idea what effect you think Brexit will have on people from Ireland or Northern Ireland going to Canada or Oz.

  • the moviegoer

    With the UK out of bounds more people will work in Europe. This will create a ripple effect where people stop seeing Australia, Canada, New Zealand and USA as their only other options.

  • chrisjones2

    NOrwegian now quote aboput €100 each way with a scenic 5 hour break in Iceland but the reality may be differeent

  • chrisjones2

    “With the UK out of bounds ” .. more fake news. WHy out of bounds? UK PM has made it clear CTA will conhtinue unless EU rules it out

  • the moviegoer

    Even if CTA continues, there will be a recession in England so job prospects aren’t great and trying to trade or set up a business will be difficult.

  • Jollyraj

    Sorry, but that doesn’t make sense. If the UK were to become ‘out of bounds’ (by which you mean needing a work permit or something?) how does that redirect people who would have gone to Canada to go to Germany instead. If anything – given the lack of second language skills – that would push more people to Canada, US and Australia.

    What you could argue is to redirect the resources currently poured into Irish into French language, thus allowing Irish people easy access to the French labour market in the event of Brexit.

    Not sure the French would be too happy, mind…

  • Old Mortality

    The have nots you will have with you always. Anyway, I thought that Ireland was very keen to attract higher paying employment. These have yachts would certainly boost per capita income figures.

  • Old Mortality

    ‘Plus this currency devaluation isn’t Brexit … There wasn’t in the EU rule book stopping the UK doing that at any time.’
    In case you hadn’t noticed, sterling is a free-floating currency, as is the euro. I think depreciation might be the word you were looking for. Devaluations went out with Bretton Woods in the early 1970s, I think.

  • the moviegoer

    It won’t redirect people who are planning on going to Canada who were never intending on going to the UK, but it will redirect some people who were only going to go to the UK to reassess their options. Some of these will pick Canada/Australia of course but some will decide to go to Europe instead as it’s nearer. French, German, and Spanish are already available in Irish schools so I would see more people taking these subjects and treating them more seriously as a result. Most Irish people have a basic smattering of a European language but don’t build upon it after school. There doesn’t actually need to be any more resources put into the languages, just a shift in cultural mindset. This will cause a ripple effect. Irish people are like sheep – if 10 people go to Gdansk this year, 100 will go next year, 1,000 the year after that. I’m not in favour of compulsory Irish language learning either btw.

  • NMS

    The Eurostat figure for Ireland Q3 2016 is 65.4%, against 75.2% Denmark, 73.2% UK, 72.6% Austria, 77.3% etc (lfsq_ergan). Yes, it has improved since the decline, but still is lower than comparative countries. EU 15 average 67.5%.

  • NMS

    Irish productivity is of course Stakhanovite in nature. Unfortunately it really only applies to quite a small number of workers in the MNC sector.

    Yes, the UK has a high participation rate, driven I would suggest by the much higher employment rates of migrants. Ireland of course has an even higher proportion of migrant workers, suggesting a participation rate problem among the natives.

  • NMS

    The CSO figures for 2015 are 8.643M inward and 6.965M outward trips.

    The spend, including fares to Irish airlines, is est €5,530M.

    Outward travel by Irish residents is estimated to have involved spending of €5,843M, less fares paid to Irish airlines (€1,148M) leaving a net spend abroad of €4,695M

    On that basis the net gain from visitors is €835M in 2015. A large figure but still far from €5,000M

    See tables TMA07 to TMA11 available at http://www.cso.ie

  • eamoncorbett

    Are you forecasting the end of capitalism and big business and the demise of Switzerland.

  • George

    Insist on English being removed as an official language? No I don’t think the French are that petty and even if they do so what. Ireland and Malta have a veto so they can insist all they like, it won’t change anything. If you don’t mind me saying, you really should read up on the TFEU before posting on this issue.

    But let’s imagine the French got out of the wrong side of the bed and decided they wanted to go on an anti-English language crusade in the EU. Other countries are quite happy to have have English as an official language (especially in Eastern Europe) so I doubt if we would be isolated on this issue.
    Also as English is one of Ireland’s official languages and is used by the overwhelming majority of its citizens people would be wondering what the French were at. It would make more sense to argue that Irish be removed as an official language but seeing as there was a unanimous vote only a few years ago to let it in I doubt that would happen either.

  • George

    The Irish didn’t choose Irish as their language. You are wrong and what’s most concerning is that even when it’s pointed out to you, you simply continue to assert the same falsehoods. They asked that Irish me made an official EU language. You don’t understand the difference it seems. English was already an official EU language and will continue to be.

  • harmlessdrudge

    Bad idea to take any trade statistics entirely at face value, including British ones, but you can find a discussion of some adjusted metrics that take account of distortions here

    http://www.cso.ie/en/media/csoie/newsevents/documents/reportoftheeconomicstatisticsreviewgroup/Economic_Statistics_Review_(ESRG)_Report_Dec_2016.pdf

    The general point is, however, indisputable. The UK exports more to Ireland than to a great many other countries, including India and China (because, thanks to the EU single market, it is prosperous), and Ireland is not remotely as dependent on the UK as Scotland, say.

    The balance between UK and Ireland can be found here:

    http://www.britishirishchamber.com/value-of-goods-1996-2015/

    The British will continue to need to import food as they will continue eating after Brexit and the added cost (from devaluation and tariffs) will contribute to inflation. Exports to Ireland will likely fall after Brexit despite devaluation.

  • Kevin Breslin

    Thanks OM for your pendantry, I always appreciate it.

  • Kevin Breslin

    I would assume in the 1970’s it would’ve been Breton-Woods II 😉

  • John Collins

    And you reckon that 62 to 38 is not overwhelming. That’s fine then

  • Keith

    I think that in itself is a fairly prejudiced view. I sense that there’s an overwhelming positive view of Ireland from English people, including Tories. I simply don’t see that English Tories or any other significant body of opinion thinks of Ireland with imperialist-inspired misty eyes. Frankly I think there’s more of a legacy of old thinking on the Irish side than the British; the British have moved on.

  • nilehenri

    anybody seen jeff?