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News : Irish Economy Last Updated: Mar 18, 2014 - 8:07 AM

Irish adjusted GNP in 2013 estimated at 1% compared with official level of 3.4%
By Michael Hennigan, Finfacts founder and editor
Mar 13, 2014 - 3:57 PM

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Michael Noonan, finance minister, arriving for the Eurogroup meeting, Brussels, March 10, 2014

While the recovery is real, Finfacts estimates Irish adjusted GNP in 2013 at 1% compared with the official level of 3.4% as reported by the CSO today - - the additional net tax-related services exports are eliminated while an adjustment is made for the impact of so-called headquarter companies.

We also argue that while employment rose sharply in 2013, it may have been half the official total of 61,000.

Michael Noonan, finance minister, said today that the fall in gross domestic product (GDP) by 0.3% in 2013 "was largely driven by the impact of the patent cliff in the pharmaceutical sector, which has a large weight in Irish output and exports." He added: "Gross national product (GNP), which excludes the impact of repatriated profits, expanded strongly."

We estimate that the GNP growth was about 1% based on the following:

1) Services exports grew by €4bn in 2013 and that reflects net rises in 'computer services' and 'business services' of €3bn and €1bn.

The huge growth in these categories in recent years reflect tax-related diversions of global revenues to Ireland, unrelated to activity in the Irish economy, by companies such as Apple (business services), Google, Microsoft and Facebook.

Net of the rise in royalties, the addition to net exports is €2bn.

Eliminating these virtual exports is equivalent to 1.5% of the annual GNP rise.

2) Prof John FitzGerald of the ESRI in his 2013 paper [Page 3) on the positive impact on GNP of mainly big US corporations moving their headquarters to Ireland to avail of the low corporate tax rate. They are included in the national accounts as 'Irish' companies, and the addition to GNP growth was about 1% in 2012.

In late 2012, Eaton Corporation, which acquired the much smaller domiciled Cooper Industries became a new 'Irish' company. Actavis, another US company, acquired Warner Chilcott, a much smaller Irish drugs company, and in 2013 it moved its headquarters to Ireland. Just these two companies have combined market caps of $70bn, 3.5 times that of CRH - - Ireland's biggest company.

So lets say the 2013 impact was also 1% -- even though it's likely to have been higher.

That would give us an adjusted GNP of 3.4% - 1.5%, -1% = 0.9%.

The recovery that began in 2013 is real but it may not be as strong as believed.

1) In contrast with PMI (purchasing managers' index) surveys, a) both industrial production data and b) the CSO’s services index (based on a panel of 2,300 firms) showed falls in 2013. Production dropped 2.2% ; Services fell 1.5%

2) In terms of job creation, we believe that it is likely closer to 30,000 than the 61,000 as reported.

There should have been a bigger impact on income tax collections.

Income tax collections of €15.76bn in 2013 were down €102m compared with target and up €582m (DIRT was €160m down while Schedule D business income tax was up €60) compared with 2012.

Income tax was flat in Jan/Feb 2014 compared with the same period in 2013 despite the jump in jobs numbers.

3) In the household survey for end 2013, the industry category is down 42,000 jobs since end 2007 while Agriculture, forestry etc is almost unchanged.

However, in the 2 years from end 2011, there was no growth in jobs in industry but Agriculture, forestry etc jobs jumped by 37,000 or 46%.

It appears that the numbers in Agriculture were underestimated in an earlier period.

4) The number in self-employment without employees was at 237,000 at end 2007 and 236,000 at end 2013. The rise of 29,000 in 2013 includes the phantom jump in full-time farmer numbers - - this is why most of the jobs added were full-time and 50,000 of them went to men.

5) The number of employees (workers in companies and for sole traders) grew by 28,000 in 2013 and is up just 22,000 on 2010 and down 206,000 on 2007.

6) There is a simple way of looking at the jobs situation in 2013 by focusing on the big sectors of the economy: IDA Ireland and Enterprise Ireland have said that their client companies added 12,000 net jobs in the year. Coupled with tourist activity related jobs, that amounts to 29,000. Public sector employment fell while 27,000 additional farmers/farm workers in 2013 is not realistic.

The number of people actually employed is up 28,000 in 2013.

The ex-additional farmers self-employed includes people who wish to be employed and in the meantime call themselves ' consultants'  -- they need only do paid work for one hour per week to be considered employed..

In addition, 86,000 unemployed in activation courses are treated as employed - -  that number is equivalent to 4% of the workforce.

For more, check here:

Irish Economy 2014: Did Ireland add 61,000 jobs in 2013?

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