In the annual National Income and Expenditure publication released on 19th July 2018, the macro-economic picture for the Irish economy painted by the 2017 headline aggregates is similar to the initial view of the year published in March 2017 and shows the following key results:
The NIE 2017 results include revisions routinely incorporated at the time of the annual results due to the availability of more comprehensive and detailed data. The results also include the outcome of work to develop and improve the suite of macro-economic statistics available for users1.
The highly globalised nature of the Irish economy was demonstrated in July 2016 with the publication of the National Accounts and Balance of Payments statistics for 2015.
The level shift in GDP of 26% in the 2015 results was driven by relocations of entire balance sheets to Ireland and the activity related to these relocations had significant consequential impact on the statistics. These relocated balance sheets were dominated by intellectual property products, with these products being categorised as intangible assets in National Accounts statistics.
The practice of relocating intellectual property to Ireland has grown in recent years, but the scale of the relocations in 2015 was substantial and added €300 billion to Ireland’s capital stocks.
Associated with the relocations were significant increases in contract manufacturing activity attributable to Ireland. When the net effects 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 results doubled from €35bn to €80bn between 2014 and 2015, driving GDP to a new level, a level shift that will be visible in the results while the underlying activities and structures remain in place.
In the past, the impact of contract manufacturing activities on exports of goods was largely offset by imports of Research and Development (R&D) services, as Irish companies made payments to non-resident parts of their groups for the use of intellectual property. However, when the intellectual property products are located in Ireland, these offsetting charges don’t occur and the full effect of contract manufacturing is attributed to GDP, as seen in the results for 2015.
GNP in 2015
The intangible capital assets in the relocated balance sheets caused significant increases in the estimates for depreciation of assets in the national accounts. Because of this increase in the depreciation charged in Ireland, foreign direct investment (FDI) profits attributable to the rest of the world are reduced. These FDI profits are a major part of the difference between GDP and GNP. The lower levels of profits, due to the increased depreciation charges, have led to a narrowing of the gap between GDP and GNP.
GNP is often seen as a better measure of the underlying level of economic activity in Ireland as the effects of foreign direct investment profits are removed, but as an indicator, it is now also elevated by these relocations. GNP grew by 19% in the 2015 results.
The impact of globalisation activities on economic statistics, as seen in Ireland’s 2015 results, presents significant measurement and communication challenges for the CSO, Eurostat, the UN and the IMF, particularly around indicators of domestic performance. It is increasingly difficult to represent the complexities of activity in highly globalised economies, such as Ireland’s, in single headline indicators (GDP and GNP).
In September 2016, a cross sector group was convened by the CSO to develop recommendations on the development of a broader suite of domestically-focused economic indicators and information that would supplement the internationally agreed measures of economic activity such as GDP and GNP. The Group met between September and November 2016 and reported to the Director General of the CSO on 23rd December 2016. The report of the group, along with the CSO response and all input documents to the group, was published on the CSO’s website on 3rd February 20172.
The expert group made 13 recommendations across five themes, including three key recommendations:
Annual results for modified GNI (or GNI*) and the quarterly underlying domestic demand measures were published for the first time in July 2017 in the National Income and Expenditure 2016 results and in the Quarterly National Accounts Quarter 1 2017 release.
Separation of key aggregates such as GDP and GNP by foreign-owned MNEs and other sectors was introduced in the annual sector accounts, published in November 2017, using the CSO’s large cases companies initially as a proxy for foreign-owned MNEs.
2 ESRG report and CSO response: Report of the Economic Statistics Review Group
GNI* is designed to be a national indicator that excludes globalisation effects disproportionately affecting the measurement of the level (or size) of the Irish economy.
Specifically, the expert group convened by the CSO to review economic statistics recommended a modified version of the existing GNI aggregate. Modified GNI (or GNI*) is defined in the recommendations as GNI less the impact of re-domiciled companies and the depreciation of categories of foreign-owned domestic capital assets, such as Intellectual Property (IP) capital assets.
The initial annual results for modified GNI (or GNI*) published by the CSO in NIE 2016 focused on excluding the impact of re-domiciled companies and the depreciation of intellectual property products and of leased aircraft from GNI. Following further analysis of R&D-related activity by the CSO, the series for the GNI* indicator was modified in the NIE 2017 results through the use of an expanded base for calculating depreciation related to intangibles. The basis for the GNI* depreciation adjustment was extended to include trade in R&D-related IP products and imports of R&D services, increasing the depreciation amount subtracted as part of the transition from GNI to GNI*.
Table 1 shows GDP and the transition from GNI to modified GNI (or GNI*).
|Table 1 GDP and Transition from GNI to GNI*|
|GDP (current prices)||195.3||262.5||273.2||294.1|
|less Net factor income from the rest of the world (which includes MNE profits) and EU taxes and subsidies||-30.4||-60.7||-50.1||-59.9|
|GNI (current prices)||164.9||201.7||223.2||234.2|
|less Factor income (mainly profits) of re-domiciled companies||-6.9||-4.7||-5.8||-4.9|
|less Depreciation on R&D related IP imports||-5.7||-31||-36.7||-43.1|
|less Depreciation on aircraft related to leasing||-3.8||-4.6||-4.9||-5.1|
|= Modified GNI (or GNI*)||148.6||161.4||175.8||181.2|
As an alternative view of the level of Irish economy, GNI* is a useful supplementary indicator of
the size of the Irish economy for analytical and economic modelling purposes, such as budgetary or
fiscal analysis as outlined in Table 2.
|Table 2 Government Debt Ratios|
|General Government Gross Debt (GGGD), March 2018||€203.4bn||€201.6bn||€200.7bn||€201.3bn|
|GGGD as % GDP||104.10%||76.90%||73.50%||68.40%|
|GGGD as % Modified GNI (or GNI*)||136.90%||124.90%||114.20%||111.10%|
The CSO plans to develop results for annual GNI* at constant prices during the second half of 2018.
The expert group made 13 recommendations across five main themes:
The Level Indicators recommendations included the proposal for the development of modified GNI (or GNI*) to give users a supplementary indicator of the size or level of the Irish economy (see Question 4, What is GNI*?). This section of the expert group report also recommended developments related to other aggregates from the National Accounts framework - the Net Domestic Product (NDP) and Net National Product (NNP) indicators - which measure economic activity with the effects of depreciation removed.
The Structural Indicators recommendations focus on addressing the difficulties for users who are interested in the performance of the domestic companies in the Irish economy. Separating results by foreign-owned MNE and other sectors, as recommend by the expert group, gives users insight into how the ownership structure of our economy impacts the statistics.
To start the work of meeting this recommendation, the CSO included a breakdown of the non-financial corporations (NFC) sector into two broadly-defined, foreign and domestic, sub-sectors in the annual sector accounts publication3 released in November 2017. The NFC sector accounts for most of the MNEs operating in Ireland. Initially, the breakdown shown was between the companies covered by the CSO’s Large Cases Unit, i.e. the largest and most complex MNEs, and the remainder.
The Cyclical Indicators key recommendation proposed a new quarterly underlying domestic demand indicator, where the impact on capital stocks of intellectual property product relocations and of aircraft leasing companies were removed. (See Question 5, What is Modified Total Domestic Demand?)
The Communications recommendations have been incorporated into the CSO’s Communication Strategy and the recommendations on co-operation highlight the importance of the CSO’s ongoing engagement nationally and internationally on globalisation measurement challenges.
Overall, delivery of the recommendations will be incremental with key deliverables included initially in the annual National Income and Expenditure (NIE) results, published in mid-2017. Progress on the deliverables will be kept under review and feedback will be sought from users on developments.
In the National Accounts framework, total domestic demand is defined as personal and government spending on goods and services plus capital stock additions and valuation changes.
To remove significant globalisation effects, a modified domestic demand indicator (MDD) was recommended by the expert group to more accurately reflect the level of activity within the domestic economy, for example, in relationship to employment growth.
This new indicator was first published in the Quarterly National Accounts results for Quarter 1 2017 and excluded trade in the aircraft by aircraft leasing companies and imports of R&D, (including R&D related to intellectual property imports) from the additions to capital stocks.
Following further analysis of the components of MDD and ongoing consultation with users, further developments to the MDD indicator were published in the Quarterly National Accounts Quarter 1 2018 results. In this amended MDD series, the globalisation effects removed when calculating MDD are expanded to cover all exports and imports of R&D services and of R&D-related IP Products (effectively, all trade in R&D-related intangibles). There are no changes to the treatment of aircraft leasing companies in the MDD indicator.
Estimates of MDD are available each quarter, at current and constant prices and on a seasonally adjusted basis in Annex 4 of the Quarterly National Accounts results available at:
The CSO currently produces a wide range of economic, business and social indicators that focus on domestic activity including such key indicators as personal consumption, retail sales and employment.
Details of these and other useful indicators of domestic activity in the Irish economy are available at:
The CSO currently publishes quarterly non-financial sector accounts which help to provide insight into the household sector. The CSO also publishes annual sector accounts for the non-financial and financial sectors that give a comprehensive overview of the impact of the various sectors on the Irish economy. This publication includes new detail for large foreign-owned multi-national enterprises (MNEs) in the Non-financial Corporations sector whose activities are now recorded separately from the remaining corporations in this sector.
The CSO continues to develop additional outputs on that help users to understand the impact of globalisation activities on the Irish economy such as the information published on activities of foreign-owned multinational enterprises and other sectors, foreign direct investment in Ireland and the Irish aircraft leasing industry.
A series of technical notes on globalisation and ESRG related issues, including notes explaining re-domiciled companies and a modified current account (CA*) to mirror modified GNI (or GNI*) are available at:
Gross Domestic Product (GDP) and Gross National Product (GNP) measure Irish economic activity including depreciation, i.e. before any deduction for depreciation, as depreciation is considered a reduction in capital stock rather than a market transaction in the National Accounts. Similar to GDP and GNP, Net Domestic Product (NDP) and Net National Product (NNP) are whole-of-economy measures, but they measure economic activity after taking account of depreciation.
The high levels of capital assets in the balance sheets relocating into Ireland in 2015 have led to significant increases in the estimates for depreciation of assets in the national accounts. Because of this increase in the depreciation charged in Ireland, the NDP and NNP indicators provide estimates of activity with much of this recent relocation effect removed.
In particular, NNP (or the closely related aggregate Net National Income, NNI) measures economic activity with the effects of depreciation and the net effect of profits of multi-national entities removed and is a useful indicator of underlying economic activity in Ireland.
Table 3 (at current prices) outlines the effect of the large depreciation charge in the 2015 results on GDP and GNP and also shows how the NNI series describes a different view of the economy in 2015.
|Table 3 Transition from GDP to NNI using data from the NIE 2015 results|
|Year||GDP||of which||Net Factor Flows||GNP||NNI|
The CSO currently publishes annual results for NNP in the National Income and Expenditure release. The ESRG Level Indicators section includes the recommendation that the CSO continue with its current work programme to develop annual and quarterly net national product (NNP) time series in constant prices.
The impact of ESA 2010 implementation on Ireland’s GDP level is almost fully accounted for by the treatment of research and development (R&D) expenditure. Under ESA2010, expenditure on R&D, including expenditure of intellectual property products, is recognised as capital investment and is added to the capital stock of Ireland.
When the ESA 2010 standards were implemented in 2014, the effect of the changed treatment of R&D expenditure on the results was to increase the level of GDP by approximately 4% in each of the years 2010 to 2013, while other ESA 2010 changes added less than 1% to GDP in those years.
In recent years, there has been a pattern of intellectual property products relocating to Ireland, either through purchases of intellectual property by Irish entities or through the relocation into Ireland of entire balance sheets containing intellectual property products. In both cases, the impact of the relocation on GDP is neutral.
Since the introduction of the ESA 2010 standards, the purchase of an intellectual property product is added to Ireland’s capital stock, offsetting the import of the product recorded as part of imports of goods and services in the National Accounts statistics. Where the relocation of an entire balance sheet occurs, the assets are added to Ireland’s capital stock as part of other (i.e. non-transaction) changes in the stock, again with no impact on GDP.
When intellectual property product relocations occur, users will notice the significant offsetting spikes in imports of goods and services and in gross domestic fixed capital formation.
Once the intellectual property is located in Ireland, imports of R&D services may be affected as Irish companies no longer make payments to non-resident parts of their groups for the use of intellectual property. Additionally, additional exports of royalties (i.e. payments by other parts of the groups to Ireland for use of the intellectual property) may occur, but these exports are unlikely to offset drops in royalty imports as the general practice is to co-locate the intellectual property to the country carrying out the related manufacturing or service activity.
Contract manufacturing occurs when a company in Ireland engages a company abroad to manufacture products on its behalf (and vice versa). The products can be new products or products formerly produced by the Irish company. The inputs used in the production process remain in the ownership of the Irish company. The foreign contract manufacturer supplies a manufacturing service to the Irish company and never takes ownership of the product.
Once the production cycle is complete, the product is sold to a customer abroad and a change of economic ownership takes place between Ireland and the country of the buyer. At this stage, the export of this good is recorded in the Irish National Accounts and Balance of Payments statistics. The value added that is attributed to Ireland from this production is the sale price of the good produced less the following typical costs associated with production:
Activities related to globalisation such as contract manufacturing are carried out by all types of companies and happen in both directions – Irish-owned companies are involved in contract manufacturing and Irish companies are also providers of contract manufacturing services to foreign customers.
In short, no.
Adjustments are made to the primary trade data (sourced from the International Trade monthly series of imports and exports of goods) to move from a “crossing the national border concept” in the international trade statistics to a “change of economic ownership concept” as required for National Accounts and Balance of Payments statistics. Adjustments for contract manufacturing are the most significant of the adjustments made to move to the change of economic ownership basis with the value added of production carried out abroad attributed to Ireland in the National Accounts and Balance of Payments statistics.
The adjustments for contract manufacturing and for other economic changes of ownership precede the adoption of the ESA2010 standards for National Accounts statistics. As in the ESA 2010 standards, the ESA95 standards specified a change of economic ownership approach and the impact of contract manufacturing was included in National Accounts results compiled under the ESA95 standards before the move to the ESA 2010 standards in 2014.
The value added from contract manufacturing incorporated into the GDP results published in July 2016 was driven by new information from data respondents and would be included in Ireland’s National Accounts statistics under either ESA 2010 or ESA95 standards.
The National Accounts and Balance of Payment statistics for Ireland are compiled in accordance with the international standards for the statistics. Standards for National Accounts statistics for EU Member States are set out in the 2010 edition of the European System of Accounts (ESA 2010) and these standards are incorporated in the EU legislation governing the production of the statistics. The ESA 2010 standards are themselves based on the UN SNA 2008 global standards for National Accounts statistics.
The CSO publish Balance of Payments statistics in compliance with version 6 of the IMF Balance of Payments standards (BPM6) and as for the National Accounts, compilation of Balance of Payments statistics to meet BPM6 standards is required under EU legislation.Compiling National Accounts and Balance of Payments statistics in accordance with the international standards ensures comparability of the statistics over time and across countries. As required under EU legislation, the CSO will continue to produce National Accounts and Balance of Payments statistics in compliance with the international standards. The sources and methods for National Accounts and Balance of Payments statistics compiled by the CSO are verified by Eurostat under the GNI Regulation that covers EU Member States own-resource contribution to the EU budget.
The National Accounts and Balance of Payments statistics published by the CSO in accordance with the international standards provide a valuable reflection of the complexity of the highly-globalised Irish economy relative to other economies and the results highlight the level of concentration of multi-national activity in Ireland.
The National Accounts and Balance of Payments statistics for Ireland are based on data provided by companies to the CSO. The CSO’s Large Cases Unit (LCU) engages directly with the largest foreign-owned MNEs to collect statistical data across all of the activities of these companies. Data from CSO’s Balance of Payments surveys of the non-financial and financial sectors and data from CSO’s short-term and structural business statistics surveys are also key components of National Accounts and Balance of Payments statistics.
Additionally, the LCU has access to other data sources, including Trade in Goods and Corporation Tax data. The broad range of information available to the LCU ensures coherent and consistent recording of activity across CSO macro-economic and business statistics and the LCU engagement with the largest multi-national companies ensures that the complex structures of multi-nationals are correctly reflected in the statistics.
One of the core principles of a national statistical institute is protection of the confidentiality of all information supplied by data providers. The CSO’s ability to compile Official Statistics is based on the extent to which individuals and companies trust the CSO with sensitive information and the CSO’s guarantee of confidentiality for all data providers is built on the fundamental requirement of non-disclosure of confidential data as set out in national and EU statistical legislation.
To comply with the requirement for confidentiality, the CSO cannot divulge any information that would lead to the disclosure of information on an individual or company when publishing aggregates and may have to suppress certain detail in the results to comply with this requirement.
The scale of the revisions to the National Accounts and Balance of Payments statistics published in July 2016 led to the suppression of some detail in the results to prevent disclosure of confidential data. The suppression of detail in subsequent National Accounts, Balance of Payments and CSO business statistics releases affected will be managed to best balance the requirement for confidentiality against the need to provide detail for users of the statistics while complying with the legal requirements on confidentiality.
The CSO is committed to the European Statistics Code of Practice. The Code’s principle on Impartiality and Objectivity specifies that:
Statistical authorities independently decide on the time and content of statistical releases, while taking into account the goal of providing complete and timely statistical information. All users have equal access to statistical releases at the same time. Any privileged pre-release access to any outside user is limited, well-justified, controlled and publicised. In case of breach, pre-release arrangements are reviewed so as to ensure impartiality.
The CSO policy on Pre-Release Access gives effect to this principle. The policy specifies the CSO’s standard practice that statistics are released to all users at the same time. However, the CSO recognizes that in very limited circumstances a business need for pre-release access may be substantiated. Any form of pre-release access is a privilege.
Three forms of limited pre-release access are permitted on the day of a release under the CSO
Full details of the CSO policy are available at:
Pre-release access for National Accounts and Balance of Payments statistics is permitted as part of the press briefing on the day of these releases and in the case of National Accounts statistics, briefing of officials from the Department of Finance, the Central Bank of Ireland and the NTMA takes place at approximately 8:30 am on the day of the release.
Gross Domestic Product (GDP) is the principal aggregate indicator of economy activity for a country or region and measures the total value added (or output) in the production of goods and services in the country.
Net factor income from the rest of the world (NFI) is the difference between investment income (interest, profits etc.) and labour income earned abroad by Irish resident persons and companies (inflows) and similar incomes earned in Ireland by non-residents (outflows). In Ireland, NFI is dominated by the profits of foreign-owned multi-national entities (MNEs) located in Ireland (outflows) and increasingly, by the overseas profits of MNEs who choose to headquarter in Ireland (inflows).
Gross National Product (GNP) is the sum of GDP and NFI. Because NFI is the difference between two large gross flows, its magnitude can fluctuate greatly from one quarter to another. This can lead to significant differences between the GDP and GNP growth rate for the same quarter.
Because of the scale of globalisation activities, it is increasingly difficult to understand and describe the complexity of the Irish economy through headline aggregates such as GDP and GNP. GNP is often seen as a better measure of the underlying level of economic activity in Ireland, but as the extent and the impact of globalisation events increases, it is also affected as an indicator of what’s happening in the “real” economy.