The National Accounts released by the Central Statistics Office last week caused quite a stir, with Gross Domestic Product (GDP) up a whopping 26.3% in 2015. US Economist Paul Krugman’s tweet made the headlines, putting the increase down to “Leprechaun economics”. Ah such a brilliant mind; Ireland, leprechauns, I’ve got it “Leprechaun economics”. Genius! Of course the media loved the catchy put down, informing us that we are being viewed as a laughing stock by international investors.
There is no doubt that it doesn’t look great when economic data changes so dramatically from previous estimates. Also, the number is outrageously large that it bears no significance in terms of explaining how the economy is performing. However, this is not the fault of the Central Statistics Office. They are merely complying with international standards in producing this data. As they made clear in their press statement: “The CSO, like all National Statistical Institutes, must publish the key economic indicators of GDP and GNP in accordance with the international rules.”
Gross Domestic Product (GDP) is designed to capture the value of all goods and services in an economy, a measure of the health of an economy. However, the evolution of the corporate structure – made worse in Ireland by our tax haven status – has meant that its relevance is becoming increasingly questionable.
The challenge for the Central Statistics Office is to provide additional reporting and indicators that can assist people in understanding the data, in order to more easily decipher between the once off corporate shenanigans and the actual performance of the underlying economy. This is something the CSO appear to be committed to with the developing of a new working group.
“Notwithstanding the fact that we will continue to comply with international data standards for compiling and reporting GDP and GNP, due to the highly globalised nature of the Irish economy and the continuing challenges that this presents, the CSO intends to convene a high-level cross-sector consultative group. The group will examine how best to provide insight and understanding of all aspects of the Irish economy including:
Looking beyond GDP data in 2015, retail sales, personal consumption and employment were up 8.2%, 4.5% and 2.6%, a better reflection of the growth experienced on the ground. While the recovery has still not been felt by everyone, the Irish economy is doing relatively well. Net expenditure by central and local government on current goods and services increased 1.1%, which points to a government watching the finances.
The bottom line is that everyone knows that GDP is a flawed measure buts it is still considered attractive to have one indicator to highlight how an economy is doing. The reality is that it is impossible to find one economic indicator that can encompass the inner complexities of all its stakeholders in an economy.
While Paul Krugman implied that the outlandish 26.3% increase in GDP is a product of Irish fairy dust, which is most definitely not the case, the distorted figures pose a wider question to the profession of economics on how best to measure the health of an economy and the welfare of its citizens. The old measures no longer suffice.