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Irish 2015 GDP growth raised to 26 percent on asset reclassification

DUBLIN (Reuters) - Ireland’s GDP grew by 26.3 percent last year, not 7.8 percent as first estimated, after a sharp revision of the stock of capital assets that some economists said called into question the relevance of the data as a measure of the economy.

Ireland's Minister for Finance Michael Noonan waits by the steps of Government Buildings in Dublin, October 13, 2015. REUTERS/Cathal McNaughton

Even the unrevised data had shown Irish economic growth outpacing the rest of Europe for the last two years. Finance Minister Michael Noonan said steadily increasing tax revenues and a near halving of the unemployment rate to 7.8 percent since 2012 also pointed to a strong economic recovery.

The Central Statistics Office said factors in the huge jump in the 2015 GDP figure included an increase in the number of aircraft imported for international leasing and the reclassification of entire balance sheets, for example through corporate inversions.

Corporate inversions involve companies seeking to cut their tax bills by redomiciling overseas, with their core operations usually remaining in the original jurisdiction even as they claim a new tax home. Ireland has become a favoured destination for such fiscal engineering in recent years.

Ulster Bank chief economist Simon Barry said the strongest consumer spending figures in many years gave a more accurate picture of Ireland’s economic performance than the GDP revision.

Consumer spending, which was unaffected by Tuesday’s reclassifications, grew by 4.5 percent last year and was up 2.1 percent quarter-on-quarter from January to March, the fastest quarterly growth since the 2008 financial crisis.

“(But) the (new) GDP numbers are just not meaningful if the aim of the game is to truly understand what is happening in the economy,” he said.

Similarly, not too much should be read into a quarter-on-quarter fall of 2.1 percent in gross domestic product in the first three months of 2016, which Barry said resulted from an unwinding of some of last year’s increase.

“STATISTICAL NICETIES”

Noonan said Ireland’s public debt stood at 79 percent of gross domestic product last year, not 93.8 percent as originally estimated, while the budget deficit improved a touch to 1.9 percent of GDP.

Public Expenditure Minister Paschal Donohoe said he would not allow the exceptional GDP data to lead the government into budgetary choices the country may not be able to afford.

Economists said the data presented a challenge in how to measure the fiscal stimulus appropriate for the economy and the sustainability of a public debt that ballooned during the crisis and will only peak at 208 billion euros (£175.3 billion) in 2018.

“The reality is that the average household didn’t wake up phenomenally richer this morning. Public and private debt still remain where they are and Brexit will still have the same sort of impact envisaged,” KBC chief economist Austin Hughes said, referring to Britain’s decision to leave the European Union.

“While the economy is on a healthy track, we have to be careful not to get carried away by statistical niceties. It’s not a get-out-of-jail free card from economic reality.”

editing by Gareth Jones

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