Europe | Ireland’s economic statistics

Not the full shilling

Why GDP growth of 26% a year is mad

THE year 2015 was a busy one in Ireland, what with protests against water charges, a referendum legalising same-sex marriage and speculation over a coming general election. No wonder the Irish failed to notice their country’s record-breaking economic growth. On July 12th, in front of gobsmacked journalists, Ireland’s Central Statistics Office (CSO) revised up GDP growth for 2015 from 7.8% to 26.3%. In modern economic history, only poor countries experiencing natural-resource booms or the end of wars have grown faster.

Few economists take the revised figure seriously. “It’s complete bullshit,” says Colm McCarthy, an economist at University College Dublin. “It’s Alice in Wonderland economics.” But while the 26.3% figure may distort economic reality, it has real political consequences.

The CSO calculations are not flawed, Mr McCarthy says. The change stems from a Europe-wide shift in the way investment is treated in GDP statistics. When a company executes a “tax inversion”, registering in Ireland to benefit from its low 12.5% corporate tax rate, it and its intellectual property are now added to the country’s capital stock, and the returns are included in GDP. Ireland’s capital stock grew by one-third in 2015, as American firms rushed to pull off tax inversions in anticipation of a likely crackdown. Ireland’s booming air-leasing sector also inflates the figures: planes owned by local firms are included even though most never visit the country.

Spectacular growth sounds good. It will make it easy for Ireland to satisfy the euro zone’s demand that countries keep their budget deficits below 3% of GDP. But this may allow politicians to return to bad habits. The finance minister promises not to indulge in tax cuts or spending increases, but his minority government may ditch that pledge to win friends in parliament. Ireland will be the country hit hardest by Brexit. It should be building up fiscal firepower, not spending it.

A second risk is that the Irish will lose all trust in economic figures. Voters are already alienated because most growth is concentrated in Dublin and does not reach the countryside. Fairy-tale GDP statistics will worsen their scepticism. One can hardly expect voters to embrace sound economics when the statisticians seem to be living in virtual reality.

This article appeared in the Europe section of the print edition under the headline "Not the full shilling"

Donald Trump and a divided America

From the July 16th 2016 edition

Discover stories from this section and more in the list of contents

Explore the edition

More from Europe

“Our Europe can die”: Macron’s dire message to the continent

Institutions are not for ever, after all

Carbon emissions are dropping—fast—in Europe

Thanks to a price mechanism that actually works


Italy’s government is trying to influence the state-owned broadcaster

Giorgia Meloni’s supporters accuse RAI of left-wing bias