Ireland’s economy is unique in Europe. Most other countries adopt gross domestic product (GDP) as the best measure to track growth and contraction in economic activity.
However, a myriad of specific factors make the GDP indicator a bit misleading in the Irish context.
However, while it is true that Ireland went into a technical recession last year, as most people have experienced, it is best for Economics 101 students or social media to bet entirely on GDP, which reflects the performance of the economy. Only academic purists post on. household.
For most people, the fact is that GDP remains a weak indicator of the true health of the economy, and although the Irish economy faces similar challenges and crises almost everywhere else on the planet, no matter how Despite this, the Irish economy is not in recession. GDP shows.
Why is this? GDP is an accurate indicator in countries such as Germany and the UK, but why is it not in Ireland?
To answer this, we have to go back a few years. During the 1990s, Ireland achieved an impressive growth record and attracted international attention, largely aided by an influx of foreign investment and subsequent rises in employment and wages.
Much of this growth was increasingly diversified and export-led, and began to make Ireland prosperous from the late 1990s. In that era, at least during the early boom years of export-led growth, it had its own name: ‘Celtic Tiger’.
Tax incentives soar Ireland’s popularity among multinationals, while the government ramps up spending and central bank regulators allow banks to provide huge property loans to commercial property developers and households did. It is booming.
As the real estate boom quickly turned into a real estate bust, government tax revenues quickly dried up, creating a gap between what the government collected and what it was obligated to spend. At the end of 2010, the state was bailed out, and after a difficult few years when the unemployment rate exceeded 15%, the economy began to grow rapidly again.
In 2015, Ireland’s GDP grew by 26%. The news attracted international attention, and economists, including Nobel Prize winner Paul Krugman, coined the derogatory term “leprechaun economics” to describe the extraordinary economic performance. .
The international accounting of a small number of multinational companies, including Apple, which has a significant presence in Ireland, has been found to be contributing to explosive GDP growth. Ireland had just recorded the highest GDP growth rate in Europe since the end of World War II. Apple has done its part by moving some of its intellectual property assets to its Irish home base, which has had strange consequences for the Irish national economy. No matter how unfair, the exploding GDP figures meant that Ireland faced a credibility problem.
Gross National Product is already well known and has been used for decades to more accurately measure economic activity in Ireland.
Among other things, GNP excludes the repatriated profits of multinational corporations.
But it was not enough to restore confidence, with GNP figures still being distorted by the giant aviation leasing companies based here.
Officials went back to the drawing board and studied the use of measures such as adjusting domestic demand.
As stated by the Central Statistical Office (CSO_), this measure goes further in seeking to exclude large transactions of foreign companies that do not have a significant impact on the domestic economy.
Adjusted domestic demand takes into account private and government consumption and investment, but excludes investment in imported intellectual property and leased aircraft.
Is it the perfect measure of the economy? No, but for most people it’s better than GDP.
So how did Ireland find itself in a technical recession last year? The definition of a recession is when a country’s GDP contracts for two consecutive quarters. This is what he did in 2023, but using the GDP indicator.
However, GDP paints a distorted picture, as more than 1,500 multinational companies, including the world’s top tech and pharmaceutical companies, have significant presence here. They bring with them vast amounts of intellectual property assets and profits that will ultimately be repatriated.
To explain more precisely what will happen next, the European Commission said this week that the Irish economy, which avoided last year’s recession as measured by revised domestic demand, is expected to have a “resilient labor market and an inflation-free economy.” “We expect growth to continue this year, supported by the slowdown.” , real income growth” by 2025.
“Ireland’s export outlook is likely to brighten over time, unless risks from war and inflation worsen,” the committee said.