Download Opening Statement

Committee on Budgetary Oversight
February 28, 2017
Central Statistics Office attendees:
Pádraig Dalton, Director General
Jennifer Banim, Assistant Director General, Economic and Environmental Statistics
Gillian Roche, Head of Government Accounts Division
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At the outset, I wish to thank the Chairperson and the Committee for inviting the
Chairperson of the Economic Statistics Review Group, Philip Lane, and the Central Statistics
Office here today to discuss the Group’s report and recommendations. The CSO welcomes
its publication and thanks the Chair and Group members for their comprehensive and
considered report.
The highly globalised nature of the Irish economy was demonstrated clearly in July 2016
with the publication of the national accounts and balance of payments statistics for 2015.
The 26% level shift in Gross Domestic Product (GDP) in 2015 was driven by relocations of
entire balance sheets to Ireland, with the activity related to these relocations having
significant consequential impacts on the results.
The relocated balance sheets were
dominated by intellectual property categorised as intangible assets. While the practise of
relocating intellectual property to Ireland has been growing in recent years, the scale of the
relocations in 2015 was substantial and added €300bn to Ireland’s capital stocks.
In
consequence, there were significant increases in the estimates for depreciation of assets in
the national accounts.
Associated with the relocations were significant increases in contract manufacturing activity
attributable to Ireland. When the net effect of sales of products produced abroad under
contract were added to Ireland’s trade in goods, the balance of trade in goods and services
in the national accounts doubled from €35bn to €70bn between 2014 and 2015, driving the
level shift in GDP. In the past, the impact of contract manufacturing activities on exports of
goods was largely offset by imports of Research & Development services, as Irish companies
made payments to non-resident parts of the group for the use of intellectual property.
However, when the intellectual property is located in Ireland, these offsetting charges don’t
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occur, and the full effect of contract manufacturing is attributed to GDP, as seen in the
results for 2015.
To illustrate the impact of the relocations on GDP and GNP results for 2015, Net National
Product1 (an alternative indicator also published by the CSO from the National Accounts
framework that measures economic activity with much of the effects of globalisation
activities removed) grew by 6.5% between 2014 and 2015.
The CSO compiles, and will continue to compile, national accounts and balance of payments
statistics in accordance with the standards set by Eurostat, the UN and the IMF and as
required under EU legislation.
Adhering to the international standards ensures the
provision of results that can be compared across countries and across time. In this context
the figures currently published are highly relevant and play an important role in describing
the complexity of our economy.
However, the growth in globalisation activities presents a significant measurement
challenge for all compilers of economic and business statistics, particularly given the need to
provide users with insight into domestic economic performance. It is increasingly difficult to
represent the complexities of the economic activity in highly globalised economies, such as
Ireland’s, in single headline indicators such as GDP and GNP.
Following the publication of the 2015 results in July 2016, and as part of its commitment to
meeting user needs, the CSO convened the Economic Statistics Review Group in September
2016. The mandate of the Group was to develop recommendations on how best to meet
the statistical needs of users of CSO statistics, in particular national users, and to provide
guidance on the development of a broader suite of domestically-focused economic
indicators and information to supplement internationally agreed measures of economic
activity (such as GDP and GNP). Statistics currently published by the CSO, such as data on
employment and earnings and information on personal consumption and expenditure, are
important indicators of the domestic economy, but the discussions of the Group also
covered the need for additional indicators or for developments of detail in existing
indicators.
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Net National Product (NNP) is equal to Gross Domestic Product (GDP) less the effects of profits and
depreciation.
2
The Group met between September and November 2016 and submitted its report to the
Director General of the CSO on 23rd December 2016. The report and the contributions to
the work of the Group were published on the CSO’s website on 3 February 2017, along with
the CSO’s initial response to the report.
The report from the ESRG sets outs comprehensively the challenges for users of Ireland’s
economic and business statistics and makes 13 recommendations across five main themes.
Overall, the CSO will be taking an incremental approach to implementing the
recommendations of the Group and taking a top-down approach, plan to deliver a number
of the key recommendations in 2017. Work will extend into 2018 where delivery of certain
requirements for more detailed or more frequent results requires significant modifications
to current processes and where there’s a need to build new analyses from the bottom-up
using the most detailed micro-data available.
I’d now like to take you through some of the detail from the CSO’s response to the key
recommendations across the five themes:
1. Level Indicators
While levels of GDP and GNP continue to be important indicators of the size of an economy,
the development of a new level indicator, GNI*, has been proposed by the Group to
measure the size of the complex and highly-globalised Irish economy. This modified GNI
indicator will exclude much of the effects of globalisation on Irish economic aggregates and
will be a useful input to analytical and economic modelling work. Ratio analysis where GDP
or GNP is used as the denominator will continue to be required, but users will now be able
to complement this analysis by using GNI* as a denominator in the calculation of
supplementary ratios.
Taking a top-down approach, the CSO plans initially to adjust the existing GNI and
corresponding BOP measures for the retained earnings of re-domiciled firms and for the
depreciation related to intellectual property (IP) capital assets. We will publish an annual
time series of this indicator as part of the annual National Income and Expenditure (NIE) and
Balance of Payments (BOP) results in mid-2017. During 2017 and into 2018, we will also
work to develop quarterly and constant price series for GNI*, and to quantify the effect of IP
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asset relocation on individual components of the international investment position data
(IIP).
The report also recommends further development in the longer-term of annual and
quarterly Net National Product (NNP) at current and constant and prices. Work to provide
quarterly NNP at current prices has started and will continue during 2017. Constant price
estimates of NNP will be developed in 2018.
2. Structural Indicators
The highly globalised nature of the Irish economy makes interpretation of the economic
statistics difficult for users who are interested in the role of domestic firms in the Irish
economic statistics. Separating results by foreign-owned multi-national enterprises (MNEs)
and other sectors will help to give users insight into how ownership structures impact the
statistics. The Group has identified this structural insight as an important deliverable in its
recommendations.
To make progress on this recommendation, the CSO will include a breakdown of the nonfinancial sector into Large Case Firms and Other Firms in the October 2017 annual sector
accounts. This new view in the sector accounts will include a split of GDP and GNI for Large
Case Firms and others. The Large Case Firms dominate Ireland’s key business and economic
aggregates, typically accounting for 80% of turnover in the economy and for 70% of exports
of goods. This new breakdown planned for the annual sector accounts will be a significant
start to providing the insight needed by users on the structure of the Irish economy.
In the longer-term (2018 and beyond), the CSO will work to expand the breakdown for
foreign-owned MNEs beyond the Large Cases firms and into other presentations of the
national accounts data.
3. Cyclical Indicators
Globalisation activities are not limited to MNEs. Activities related to globalisation such as
contract manufacturing are carried out by all types of firms and happen in both directions –
Irish-owned firms are involved in contract manufacturing and Irish firms are also providers
of contract manufacturing services to foreign customers.
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The additional detail on activities related to globalisation such as IP relocation, contract
manufacturing and aircraft leasing proposed under the Cyclical Indicator theme will provide
important information on how these activities contribute to the aggregates and the CSO
plan to publish initial breakdowns of these details in mid-2017 at the time of the National
Income and Expenditure release.
Along with the analyses in the Structural Indicators recommendations, these additional
details on the activities identified will help to give users a comprehensive view of the effect
of globalisation on the Irish economy.
4. Co-operation Nationally and Internationally
The CSO’s focus will continue to be on the compilation of consistent macro-financial
statistics in its collaboration with other domestic institutions. In addition, the international
organisations co-operate closely on globalisation issues and the CSO will continue to be
closely involved with this work, including participating (by invitation) in the advisory expert
group to the Inter Secretariat Working Group on National Accounts – the body responsible
for the multi-year programme of development of the next generation of standards for
national accounts statistics.
5. Communications
The CSO has appointed a head of communications and plans to establish a press office
function and to restructure the existing information unit in line with the CSO’s new
communications policy.
In summary, delivery of the recommendations by the CSO will be incremental with new key
measures (GNI* and additional detail on globalisation activities) included with the annual
National Income and Expenditure (NIE) results, scheduled for mid-2017. By the end of 2018,
the measures will be extended in stages to the various quarterly series where feasible.
Progress will be kept under review and feedback will be sought from users on
developments. Compilation of national accounts and balance of payments statistics will
continue in line with the international standards and the new indicators and analyses will be
further developments within the existing frameworks for the statistics.
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Finally, the CSO operates under the terms of the Statistics Act, 1993, which sets out the
mandate of the Office and the standards by which we conduct our business. Independent,
objective, trusted and high quality Official Statistics are the cornerstone of any developed
democratic society. A key element in ensuring that trust and quality is the legal guarantee
in relation to the confidentiality of statistical returns made to the CSO. This commitment to
confidentiality is also established in the European statistical framework legislation and in the
European Statistics Code of Practice. The legally binding guarantee of confidentiality given
to all CSO data providers is essential to our ability to collect the data required to produce
accurate outputs. As a result, to ensure that the proposed new measures will be and can
remain robust, repeatable, consistent and comparable, the CSO will have to balance the
additional detail made available against its commitment to the confidentiality of data
provided by respondents.
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Appendix 1 – Membership of the strategic high-level group on Economic Statistics
The group that will develop recommendations on how best to meet the statistical needs of
national users and provide guidance on the development of indicators and analyses that
better provide insight to Irish domestic economy activity includes the following people:

Philip Lane (Chair) - Central Bank of Ireland

Alan Barrett - Economic and Social Research Institute

Seamus Coffey - University College Cork

Thomas Conefrey - Irish Fiscal Advisory Council

John Fitzgerald - Trinity College Dublin, Irish Times

John McCarthy - Department of Finance

Dan O'Brien - Institute of International and European Affairs in Dublin, Irish
Independent

Fergal O'Brien – IBEC

Frances Ruane – Trinity College Dublin, European Statistical Advisory Committee

Marie Sherlock - SIPTU

Rossa White – National Treasury Management Agency

Jennifer Banim and Michael Connolly – Central Statistics Office

Eurostat and IMF - International observers
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