The Celtic Tiger appears to have roared back to life, in a throwback to the 1990s, when Irish growth rates rived those of the vaunted Tiger economies of Asia.
Ireland’s GDP surged by a gobsmacking 26.3% in 2015, according to revised numbers released by the island nation’s Central Statistics Office (July 12). The original GDP estimate showed Ireland growing at a 7.8% clip in 2015.
This is a fundamentally ridiculous number. If it were true, it would mean that the growth rate in Ireland—an already incredibly wealthy economy—was growing a more than triple the rate of the small, poor economies which typically rank among the world’s fastest-growing. (It’s easier to grow quickly off a much smaller base.)
So what’s going on? Well, the updated numbers, seem to reflect the rash of corporate inversions over the last couple years, in which a number of companies merged with entities domiciled in Ireland in deals driven in part to take advantage of Ireland’s rock-bottom 12.5% corporate tax rate.
In its press release, the Irish statistical authority noted that capital assets—property like buildings, equipment, machinery and importantly, patents—surged markedly, driven by “corporate restructuring both through imports of individual assets and also reclassifications of entire balance sheets.”
Translation?
The 33% surge in Ireland’s capital asset base in 2015 was driven, apparently to a significant extent, with a few strokes of the pen.
Under inversion deals, property which previously was owned by foreign companies, suddenly became property of “Irish” companies, once corporate tax inversions were complete. The textbook case was the merger between Medtronic, formerly of Minneapolis, and Ireland’s Covidien. The Minneapolis medical device manufacturing shifted its headquarters to Dublin after the $43 billion deal closed in 2015. While the US Treasury has taken steps to tamp down on inversions, some deals are still pending. Milwaukee’s Johnson Controls has announced plans to team up with Tyco, headquartered in Ireland, in a $14 billion deal. (A shareholder vote is due in August.)
That resulted in a giant boom in Ireland’s capital stock.
The point is this isn’t real economic activity. How do we know? Jobs.
True, Ireland’s unemployment rate has been on a steady down trend from the peaks it hit during the aftermath of the financial crisis of 2008. But there’s been no boom to match the growth of capital assets by inversions and related financial engineering. That’s not to say that this influx of productive assets—at least on paper—has been bad for Ireland. It has helped boost exports of goods and services for example, according to the CSO. But the statistical agency did admit “employment has not changed greatly as a result.”
Again, Ireland is doing well. But an annual growth rate of 26% while statistically accurate, doesn’t reflect reality in any meaningful way.