Ireland hikes GDP forecasts on jobs, more statistical distortions

(Reuters) - Ireland raised its economic growth forecasts for the next four years on Tuesday, predicting gross domestic product would rise 5.6 percent in 2018 as a strong, broad-based recovery continues.
FILE PHOTO: Construction cranes are seen in the Irish Financial Services Centre in Dublin, Ireland April 24, 2017. REUTERS/Clodagh Kilcoyne/File Photo
The finance ministry warned, however, that GDP figures would continue to be boosted by statistical distortions that have led the Irish statistics agency to phase in new measures to better measure the economy’s performance.
By GDP, Ireland’s economy has been the best performing in the 28-nation European Union since 2014.
“While GDP clearly overstates domestic living standards, analysis of a wider suite of indicators shows the economy in a healthy position at present,” the finance ministry said in its biannual review of the economic outlook.
“For instance, the economy is approaching a situation that could reasonably be classified as full employment.”
The finance ministry had previously forecast GDP growth of 3.5 percent this year.
On Tuesday it said it expected GDP to grow by 4 percent in 2019, more than the 3.2 percent it had been forecasting.
Growth will moderate to 3.4 percent in 2020 and 2.8 percent in 2021 when the terms of Britain’s full exit from the EU will have a “significant bearing on Irish living standards”.
The relevance of using GDP as an accurate measure for an economy as open as Ireland’s was called into question when growth of 26 percent was recorded in 2015 due to statistical distortions related to Ireland’s large multinational sector.
Such distortions again flattered figures last year when GDP grew at 7.8 percent.
The ministry indicated that underlying domestic demand — a measure that strips out these volatile components — was a better gauge of activity in the real economy and said it was projected to increase by 3.9 percent this year.
Many economists also rely on the labour market as a more accurate barometer and the updated figures showed unemployment falling to 5.8 percent this year from a high of 16 percent in 2012 before remaining at 5.3 percent over the next two years.
The sharp upgrade for this year surpasses that of the country’s central bank which last week increased its GDP forecasts to 4.8 percent. It predicts growth of 4.2 percent in 2019.
But the finance ministry said risks to the outlook were tilted to the downside in the short term and more firmly so over the medium term, citing the potential for Ireland to be caught in the crossfire of a global trade war and the impact of Brexit.
“Beyond 2020, the post-exit trading arrangements between the UK and the EU will have a significant bearing on Irish living standards and there is, at this point, no clarity on the form that the post-exit arrangements will take,” it said.