Irish Economy
Fact and Fiction: Time to review Ireland's economic statistics?
By Michael Hennigan, editor of Finfacts
Aug 5, 2015 - 8:52 AM

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Fact and Fiction: Ireland's economic statistics are heavily distorted by the foreign-owned multinational sector and the level of distortions have increased in recent years.

Last week Ireland's national statistics office, the Central Statistics Office (CSO), reported the first estimates of the national accounts data for the first quarter of 2015, one month after the end of the second quarter, and in the same week, the CSO suffered reputational damage when its case for the Irish Water public agency to be treated as an independent agency separate from the government's finances, was witheringly dismissed by Eurostat, the EU's statistics agency.

The national accounts data was issued with no material caveats and also last week, the Central Bank noted in its latest quarterly Bulletin that "the high rates of growth in exports and imports in the monthly trade data suggest that some of the impact of contract manufacturing may have carried over into the early part of 2015. Our working assumption continues to be that this represents a step increase in the level of exports and imports and not a lasting upward shift in their growth rates."

The Bank had warned in February of the distortions caused to 2014 GDP (gross domestic product) by so-called "contract manufacturing" which involves booking overseas transactions in Ireland, mainly for tax avoidance purposes. A month later the CSO said in a technical note that considerable comment had attributed “undue significance” to the matter and it was "not particularly significant in explaining the recent growth in Irish GDP."

Enda Kenny, taoiseach, in a speech in March 2015 said in respect of the 2014 trade performance that "export growth at 12.6% was the strongest since 2001" — of course political distortion is different to economic impact but it does matter when ministers confuse spin or lying with substance.

Irish Export Performance: Myths and reality - Ireland is a poor exporter

Seamus Coffey, the UCC economist, "estimated 'gross value added' in Ireland of around €3.5bn" from contract manufacturing in the nine months to September 2014, based on some CSO data, but Coffey didn't have enough data to judge the impact.

Double Irish Dutch Sandwich services trade and tax inversions which mainly involve US companies becoming Irish for tax purposes, in effect moving a tax residency and headquarters to Ireland, cause big distortions.

Even though fake exports such as Google Ireland booking Google Australia's sales in Ireland which become Irish output and exports, may not have an impact on growth, it messes up productivity data e.g. unit labour costs and distorts for example science and technology indicators.

In 2014, €48bn of the total €102bn in services exports were in the 'Computer Services' sector — dominated by the likes of Google, Microsoft and Facebook.

Google books about 40% of its global output in Dublin making its 2,500 staff in Dublin from a head count of 53,600 at end of December 2014 appear superhuman in terms of productivity.

In 2013, John FitGerald, then an economist at the Economic and Social Research Institute (ESRI), in a paper on the impact of foreign companies becoming Irish for tax purposes (redomiciled Plcs), found that GNP (gross national product) in 2010 was boosted by 2.9% and the current account was artificially improved by 4.1%.

In the first quarter of 2015, Medtronic, an American company medical devices company, became Irish while US firm Actavis, a redomiciled Irish PLC, acquired the large US company Allergen. Medtronic and Actavis (renamed Allergen) alone have a combined market capitalisation of $230bn.

US-Ireland Tax Inversions 600,000+ staff

Economists John FitzGerald and Seamus Coffey have highlighted how Balance of Payments/ current account surpluses reported in recent years were in fact deficits

Irish M&A deals H1 2015: Dutch or UK firm acquires Irish firm for €32.6bn - they are both Americanthis is an example today of fact and fiction

John FitzGerald said in a summary of a recent paper: "Traditionally, a key to understanding the behaviour of the Irish economy was the growth in exports and imports. However, recently implemented definitional changes in the national accounts make these data very difficult to interpret. The inclusion in the national accounts later this year of aircraft leasing activities on a comprehensive basis will further complicate the situation. The ongoing large purchases of aircraft by the leasing sector will, henceforth, be included under imports. As well as making the data on exports and imports difficult to interpret, this will also make the policy implications of changes in the current account of the balance of payments more obscure.

Finally, the activity of a small number of firms, commonly referred to as 'redomiciled Plcs,' is also distorting the figures for Gross National Product (GNP) and the current account of the balance of payments.

Taken together, these new developments affecting the Irish national accounts mean that there is no simple measure of economic progress in Ireland. The change in GDP is now a defective indicator of welfare. While GNP is a much more satisfactory measure, it can also be distorted by the behaviour of redomiciled Plcs."

No simple measure of economic progress in Ireland: GDP & GNP defective

Unemployment data that are published as percentages of the workforce are based on the International Labour Organisation (ILO) definition from 1982 — people who worked for any amount of time, if only for one hour, in the course of the reference week.

During Ireland's international bailout (2010-2013), the International Monetary Fund (IMF) in its surveillance reports used what is termed a "broad" rate of unemployment similar to what has been produced by the US Bureau of Labor Statistics since 1994. In June 2015, the US rate was 10.5% compared with the main rate of 5.3%.

In April 2013 the IMF said: "the underemployment rate in Ireland stands at a staggering 23%" — which included part-time employees seeking full-time work and the unemployed in what the CSO term "Live Register Activation Schemes." In that month the total number in schemes amounted to 86,000 people.

In June 2015, there were a combined 437,000 people on the Live Register and in public activation programmes (81,000). The official jobless level was 209,000 and the rate was 9.7% while the broad rate was close to 20%.

Germany publishes two monthly unemployment rates 1) the federal employment agency (BA - Bundesagentur für Arbeit) bases its rate on what's called the Social Code 2) Destatis, the federal statistics office uses the International Labour Organisation standard for international comparisons.

Destatis says that the "most prominent figure in public awareness in Germany generally is the number of registered unemployed as published by the BA."

Results of the labour force survey show that there were 1.94m unemployed in June 2015. Compared with May 2015, their number increased by roughly 43,000, or 2.1%. Adjusted for seasonal and irregular effects, the number of unemployed stood at 1.97m. The adjusted ILO unemployment rate was 4.7% again in June 2015.

The BA reported that 2.71m were unemployed in June and the unemployment rate was 6.2%.

In October 2014 unemployment as measured by the BA was more than 700,000 or 35% greater than the Destatis measure. Now the margin is 740,000.

UK researchers in a 2012 paper estimated that 900,000 unemployed people had been diverted onto incapacity benefits.

For the UK as a whole in April 2012, "the new figures point to more than 3.4m unemployed. This compares to just 1.5m on the claimant count and 2.5m according to the Labour Force Survey — the government’s two official measures of unemployment. The difference is attributable to extensive hidden unemployment."

The idiot/ eejit's guide to distorted Irish national economic dataFinfacts 2014 article

Yes there should be a review of economic statistics not only to understand the impact of distortions, and to agree on where there should be more consistent information on their impact, but to  also help the public to separate fact from fiction.

Economists John FitzGerald and Seamus Coffey have highlighted how Balance of Payments/ current account surpluses reported in recent years were in fact deficits

UK

Last month George Osborne, UK chancellor of the exchequer, commissioned an independent review of Britain’s economic statistics, led by Sir Charlie Bean, former deputy governor of the Bank of England, after a number of failures and missteps at the Office for National Statistics.

The Financial Times reported last June that the ONS data on imports and exports — which feed into estimates of Britain’s gross domestic product — lost their status as ‘national statistics’ last November after the organisation made a number of mistakes. National statistics are those that “meet the highest standards of trustworthiness, quality and public value” according to the UK Statistics Authority, which oversees the ONS.

The UKSA said in a report that the 11 members of staff who produced the official trade data were inexperienced and forced to grapple with inflexible processing systems that put them under more strain.

The regulator also said: “We consider that the inexperience of the team has impacted upon the quality of the UK trade statistics and the service provided to users — for example, the sense checking of the statistics and the speed and quality of responses to queries.”

The UKSA also told the ONS to do a better job of gathering and presenting data on trade in services, not just goods.

The FT reports today that Sir Charlie Bean will on Wednesday put the nation’s number crunchers on notice that the status quo is untenable, arguing that the internet revolution has rendered Britain’s official statistics out of date.

Speaking ahead of Wednesday’s launch of his official review into the state of the nation’s economic numbers, he told the Financial Times the current framework for the national accounts “was developed in the aftermath of the Great Depression.”

Apart from all the distortions in Ireland's national accounts, it would be naive to believe that a similar review is not required in Ireland.


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