Ireland's 'dramatic' 26pc GDP growth for 2015 raises eyebrows

Irish Finance Minister Michael Noonan labelled the 26 per cent GDP growth as a sign of "real growth". Photo / Getty

Ireland's economy grew by a "very dramatic" 26 per cent last year, boosted by one-off corporate tax inversions and aircraft purchases, according to official statistics.

The Irish Central Statistics Office (CSO) had previously estimated that gross domestic product (GDP) rose by 7.8 per cent in 2015, but revised up the figures after receiving "more complete and up-to-date data" for the end of the year.

An increase in aircraft imports for international leasing and the reclassifications of corporate balance sheets through tax inversions into Ireland were among the reasons for the GDP figures more than tripling to the fastest pace of growth on record.

Michael Connolly, a CSO statistician, said: "What happens here is that an entire balance sheet of a company relocating to Ireland, from somewhere else, is included in our capital stocks or our international investment position.

"The very dramatic increase has increased the capacity for production in the economy and impacts the accounts for 2015 in the increase of exports and imports."

The GDP figures total all economic activity within Ireland's borders, whether conducted by nationals or foreign investors. Accordingly, the relocation of foreign corporate headquarters to Ireland, such as those of Perrigo and Jazz Pharmaceuticals, has artificially inflated the GDP numbers.

Connolly added: "We are a very small economy, and if we get a big increase in assets, this is what happens."

Ireland boasts an internationally low 12.5 per cent corporation tax levy and a welcoming tax regime, which has encouraged many US companies to redomicile, shifting their businesses to the European economy.

Jack Allen, a Capital Economics analyst, said that the figures had been plagued by "massive distortions".

He explained that in theory, gross national product (GNP), which estimates the value of economic activity by Irish citizens, regardless of where it occurs, should be a "more reliable guide".

Despite the huge increase in last year's data, Ireland's economy made a nervous start to 2016. GDP fell by 2.1 per cent in the first three months of the year, amid warnings that things could get worse for the economy.

Ireland is considered one of the economies most vulnerable to the knock-on effects of the UK's decision to leave the EU. Analysts are concerned that a potential reintroduction of trade controls could weigh heavily on the Republic of Ireland, as it shares a land border with Northern Ireland.

Sarah Carlson, a senior vice president at Moody's, said: "Ireland has by far the largest exposures to the UK's exit from the EU." The ratings agency has flagged the Irish food and agriculture sectors as particularly at risk, "given their relatively high share of exports destined for the UK".

Allen suggested that Brexit could be a positive for Ireland, as British firms could "decide to shift activity and investment away from the UK and into Ireland". However, GNP was also revised higher, from 6.8 per cent to 17.5 per cent, for 2015 as a whole. Allen suggested that household consumption figures, "which should definitely be immune to these statistical distortions", rose by 4.5 per cent last year.

Michael Noonan, Ireland's finance minister, said that the figures showed Ireland was enjoying "real growth". Speaking in Brussels, he said that the data "show that Ireland's economy continues grow ... with more at work than at any time since the onset of the downturn".

The minister has in the past pledged to "defend our 12.5 per cent corporation tax rate and promote innovation as the lynchpin of our jobs policy, underpinned by strong alliances with our European partners".