Ireland’s central bank governor has defended the country’s global economic growth against accusations that it is a man-made product of big US corporations taking advantage of low Dublin tax rates.
Gabriel Makhlouf told the Financial Times that much of Ireland’s growth – which is expected to be 12.2% last year, more than triple the growth in the EU as a whole – comes from “real factories with real people”, although much of the business stems from big tech and pharmaceutical groups.
“Too many people think or jump to the conclusion that this is IP moving around and not real, and that’s not true,” Makhlouf said.
“This stuff, especially in the pharmaceutical industry, it’s made in Ireland. There are people in Ireland. There’s a remarkable proportion of the top ten drugs in the world (that) are made in Ireland,” he said. he said “Intel is one of Ireland’s oldest multinationals and also manufactures products.”
The debate over Ireland’s economic outperformance erupted recently after the country’s 3.5% quarterly gross domestic product growth single-handedly kept the eurozone economy from stagnating in the past three months of Last year.
Critics say Ireland’s GDP is being skewed by the accounting maneuvers of large US multinational corporations that take advantage of Ireland’s low tax rates. When Apple moved intellectual property assets to its Irish base in 2015, it helped boost Ireland’s GDP by 25%, which Nobel Prize-winning economist Paul Krugman called “the leprechaun economy”.
After Ireland’s Central Statistics Office released its 12.2% growth estimate for 2022 last month – the highest in the OECD rich country club – the Irish Times wrote that the data economics of the country “should carry a health warning” because they were “insignificant as a guide to the evolution of the economy”.
Many large US companies – including Google, Apple, Meta, Intel and Pfizer – have their European bases in Ireland, where the corporate tax rate is a relatively low 12.5%. The country is also a global hub for aircraft leasing. This helped its economy rebound strongly from the sudden end of an earlier “Celtic Tiger” boom in the 2008 financial crisis.
Even before last year’s growth, Ireland’s GDP had more than doubled since 2014, according to Eurostat, the EU’s statistics office. This dwarfs the overall 23% growth of the EU economy over the same period.
The Irish central bank uses alternative growth measures to eliminate the impact of multinational companies and get a better picture of domestic demand. One is a version of gross national income, known as the GNI star, which the central bank expects to grow much slower at 5.9% in 2022.
Makhlouf said exports from multinational companies in Ireland “have grown and have been a big driver” of the country’s growth. “They skew our stats, that’s why. . . because a lot of the profit goes to the parent company – they’re not based in Ireland – we don’t use GDP.
Ireland’s growth outlook has weakened recently, Makhlouf said, due to high inflation, rising interest rates and slowing global growth. Another blow could come from a wave of job cuts announced recently by several major technology groups which is expected to hit their Irish units.
Ireland’s industrial production data saw unusual volatility last year, steadily rising or falling by more than 10% month-on-month, prompting the statistics office to review the way which he calculated the seasonal adjustments.
Ireland’s central bank said some of that volatility stemmed from ‘balance sheet relocations to Ireland’ by large multinational companies, as well as the groups’ ‘production volatility’ in sectors such as chemicals and the pharmacy.
“GDP has historically been an unreliable guide to the underlying performance of the Irish economy since 2015 in particular,” said Dermot O’Leary, chief economist at Goodbody.
He said the activities of multinational companies, including “relocation of intellectual property, trading and contract manufacturing”, had all contributed to “distorting Irish GDP, particularly in the short term”.
But he added: “The activities of multinationals are real and have had a visible impact on the prosperity of the Irish economy in recent years.” Employment from foreign direct investment has grown by 8% on average over the past five years in Ireland, he said. “These are well-paying jobs,” which he says have “contributed to an extraordinary rebound in tax revenue on top of the boom in corporate tax revenue.”
Ireland’s unemployment rate has more than halved over the past seven years to 4.4% in January. The country’s corporate tax revenue rose 68% in the year to August and the central bank predicted it would top 20 billion euros for the first time ever. ‘last year. Irish exports pink 25% last year to reach a record level of 208 billion euros.