In the 1970s, as a junior official in the Department of Finance working on economic forecasting, I learned about the complexity of measuring Irish output and income, and related economic growth. A meeting with the Central Statistics Office in 1973, concerning a tricky national accounting issue, taught me that in the real world there was a need for suitable accounting compromises to reflect the underlying reality of what was really happening in the Irish economy.
The State-owned Irish Shipping company had ordered a large bulk carrier, which was built in a shipyard in Glasgow. When it was finished in 1973, because of its size and its specialised function, on its maiden voyage it would not come to Ireland, and might never have visited an Irish port.
According to the CSO, accounting rules meant that, because it would never dock in Ireland, it could not be counted as an import. However, it was undoubtedly part of Irish investment for the year.
The result would have been a rise in investment that would not have been offset by the import of the ship, adding to output measured by GDP, despite the fact that the output, the building of the ship, took place in Glasgow.
After some debate about the accounting rules, a compromise was reached. If the ship sailed through Irish territorial waters on its maiden voyage, the CSO would count it as an import. The ship duly sailed within 12 miles of the Irish coast and Irish GDP was untainted.
In the subsequent half century, the growing complexity of the Irish economy has posed many greater challenges for the CSO and economists alike. Today all economy watchers in Ireland know that GDP, the standard international measure of national income, is a very inaccurate reflection of the income of the people of Ireland.
Instead we have developed a series of alternative measures, GNI* and modified domestic demand. These two measures strip out the activities of multinational enterprises in Ireland that affect GDP but have no impact on the welfare of those of us living in Ireland.
The OECD has suggested yet another measure for use in international comparisons of welfare, net national income. This takes out all depreciation – capital that is used up in a year. If this measure were used, comparing Ireland with other countries would be straightforward.
Noisy headline data underlines uselessness of traditional measures for Irish economy
However, there is strong resistance within the EU to using this alternative measure as some countries have enshrined GDP in legislative rules relating to fiscal policy. As a result, GDP will be with us for the foreseeable future.
While we in Ireland use other measures of national income and economic welfare, the problems with Irish GDP are sufficiently large that it makes the interpretation of euro zone economic activity difficult using GDP. For this reason, the European Central Bank, when looking at national income in the euro zone, excludes Irish GDP, using an alternative measure, modified domestic demand.
Over the past year there have been exceptional gyrations in Irish GDP each quarter, with very noticeable knock-on effects on euro-zone GDP. In the first quarter of this year Irish GDP fell 5.6 per cent on the previous quarter, reducing euro-zone GDP by 0.2 percentage points. It then rose in the second quarter by 11.5 per cent, adding 0.4 percentage points to euro-zone GDP.
Using a more appropriate measure of activity in Ireland, there would have been very little impact on euro-zone GDP.
While the ECB understands what is happening, many others watching the European economy are not aware of the distorting effects of observed very large changes in Irish GDP on the euro zone as a whole. One central banker from a large euro-zone economy whom I met this summer had very strange ideas of what was going on in Ireland as a result of the antics of Irish GDP.
The recent extreme changes in Irish GDP occurred because of fluctuations in the export of pharmaceuticals. In the first quarter of 2026 exports were down but, as a counterpart, continuing production increased stocks. However, because the stocks are valued at a fraction of the sale price, it appeared as a fall in output. This was reversed in the second quarter, with significant exports coming from stocks.
The CSO knows this was what happened and it would be helpful if it explained the underlying factors causing surprising GDP numbers at the time of publication. This would help outsiders watching not just Ireland, but the wider euro zone.
Life was much easier when diverting a ship sorted out all the accounting problems.