Green Shoots in The Irish Economy - Really?

Multinational companies who have relocated to the Republic of Ireland for tax purposes without investing in the country are distorting the economic statistics and exaggerating its export led recovery reports the FT in todays publication. An example of the distorted statistics is; in 2012 the official current account surplus was 6.1% of gross national product but that falls to 0.6% when the retained profits of these foreign companies is removed.

This distorted data is leading the Republic of Ireland into a false sense of security as there is less room to increase domestic productivity and demand. The Irish economy’s competitiveness and  ability to service debt is hugely exaggerated in the official figures being released to the public.  Therefore the Irish economy may run into significant head winds when they exit the bailout programme in the near future

 

This flaw in the statistics was discovered when official data on foreign companies was release for the first time to economists outside of Ireland’s Central Statistics Office. It would appear that the establishment in the Republic of Ireland are trying to gloss over the inherent structural problems in the economy by broadcasting that there are green shoots appearing. However this may not be the case

 

One of the main constraints on domestic productivity and demand is a lack of credit, this is preventing any green shoots appearing. Credit is mainly controlled by the Banks which as well all know have massive issues with their loan books. Only when banks address their loan books and deal with both personal and corporate debts will credit flow again and allow the real economy to function. The most efficient and effective way to deal with this debt issue is by mediation, whereby Bank and Borrower work together to achieve a amicable solution. GDP Partnership have pioneered mediation between borrowers and banks and have successfully resolved numerous debt issues to the benefit of both borrower and bank.

We would expect this trend to continue in the next three to five years as the banks start to recognise Mediation with the borrower as the optimum solution to the problem.  In the meantime we recommend you treat data and statistics released by government and other sources, which relates to green shoots for the economy with caution.

Author: Louis Waters ACA Senior Relationship Executive