Business

Irish GDP revision eases debt target

Irish Finance Minister Michael Noonan Image copyright Getty Images
Image caption Better figures: Irish Finance Minister Michael Noonan's job of deficit reduction has now become much easier

Research and development (R&D) costs and illegal activities have been added into Ireland's GDP for the first time, enlarging the economy by 10bn euros ($13.6bn; £7.9bn).

This 6% increase in national income numbers gives the government more scope to cut its austerity programme.

EU rules allow R&D investment, illicit gambling, drug dealing and activities linked to prostitution to be included.

Separate figures showed the economy grew 2.7% in the first quarter of 2014.

And the sharp contraction in the economy in the final three months of 2013 was revised to show that it shrank less than thought, by 0.1% rather than 2.3%.

The GDP recalculation does not affect the growth figures, because previous years have also been recalculated.

In October's budget, Finance Minister Michael Noonan outlined 2bn euros ($2.7bn) programme of tax hikes and spending cuts to meet a deficit target of 3% of GDP by the end of next year.

Last month, he suggested that the enlargement of GDP under the new EU rules could mean the programme might be reined back, as the debt and deficit will appear smaller when measured against the new "larger" economy .

Revisions

Conall Mac Coille, chief economist at Davy Group, Ireland's biggest securities firm, estimated that the new numbers meant Ireland's debt-to-GDP ratio stood at 116% and its deficit at 6.7% of GDP at the end of last year .

Previously, those figures had been 123.7% and 7.2%.

He said: "It's a measurement issue rather than a real improvement. But since exchequer returns were outperforming anyway, it looks as though the finance minister can bring the deficit down below 4% of GDP by the end of the year and hit his deficit target of 3% easily by the end of 2015, without having to do very much at all in the way of austerity."

Mr Mac Coille estimates that R&D expenditure contributed more than 90% of the extra GDP, with illegal activities making up the rest.

Illegal activity is calculated using EU guidelines.

There has been a raft of encouraging economic figures coming out of Ireland in recent months.

Much of the growth is coming from exports, which grew 1.8% in the first three months.

Even though personal consumption fell 0.1% in the first quarter, the unemployment rate now stands at 11.6%, the lowest level since April 2009.

There have been some 30bn euro in tax hikes and spending cuts since the property bust of 2008 was followed by a banking collapse. Ireland was forced to turn to the IMF and the European Union for a 78bn-euro loan, which came to an end in December.

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