Compilation method changes to boost Irish GDP

Friday 17 January 2014 10.05
The CSO supplied an estimate of up to 2% of extra GDP

The CSO supplied an estimate of up to 2% of extra GDP

By Sean Whelan, Economics Correspondent

@seanwhelanRTE

Planned changes to the way EU countries compile their national accounts statistics could add between 1% and 2% to the level of Ireland’s GDP.

The European System of Accounts 2010 (ESA2010) will come into effect later in the year, and will make a number of changes to the way countries measure economic output.

The biggest change, particularly for Ireland, will be that it will treat research and development spending as capital investment, rather than current spending.

The move is not expected to make much change to the growth rate here or in the other EU states, but it will change the nominal or cash amount of GDP.

This will increase by between €1.5bn and €3bn and has a useful side effect of making the Government debt situation look a little better, as the Debt/GDP ratio is calculated using nominal GDP.

Eurostat, the European statistical agency, has asked statistical agencies in EU member states to make an estimate of the new methodology for the reference year of 2011.

Ireland’s Central Statistics Office supplied the estimate of up to 2% of extra GDP, based on 2011 data.

But for the EU as a whole, the changes are expected to add 2.4% to the level of GDP. Around 80% of this is the result of capitalising R&D spending.

In Finland and Sweden, the effect will add between 4% and 5% to GDP, indicating the high levels of public and private spending on R&D.

Britain is expected to see a GDP increase of between 3% and 4% while France, Germany, Denmark and Belgium expect a 2% to 3% increase.

Ireland is in a group with eight other countries that expect a more modest increase of 1% to 2%, reflecting lower R&D spending.
The others are Czech Republic, Estonia, Spain, Italy, Luxembourg, Portugal, Slovenia and Slovakia.

Latvia, Lithuania, Hungary, Poland and Romania expect an increase of GDP of between 0% and 1%.

The Unites States has also revised the way it compiles GDP data, with a similar set of statistical changes in 2008.

The impact there saw an increase in GDP of 3.5% for the years 2010 to 2012, with the capitalisation of R&D spending accounting for 2.5%.

Half of the remaining increase in GDP in the US is accounted for by capitalising things like entertainment, literary and artistic original works.

These are already accounted for in EU statistics, so a better comparison for the new statistical methods is a 3% increase in US GDP and a 2.4% increase in EU GDP.

The changed methodology is expected to be introduced through the EU in the autumn, but may make an appearance in Ireland in June when the National Income and Expenditure accounts for 2013 are published.

The whole data series will be revised as well, taking the new rules on capitalising R&D spend into account.

 

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