5 reasons why you should care about GDP figures

Revised figures have hit reputation and will cost an extra €280m

The revision of 2015 GDP figures raised big questions for Ireland. Pic: iStock

The Central Statistics Office has announced that it is setting up

an expert group to look at developing more relevant figures to measure the performance of the Irish economy.

The move follows a reaction to controversial revisions of economic growth figures by the CSO earlier this year.

The revised figures showed that the economy, as measured by GDP, grew by a staggering 26.3 per cent last year, prompting US Nobel Prize-winning economist Professor Paul Krugman to describe them as 'Leprechaun economics'.

So why do these figures matter so much?

1)Sniggering at the back: wildly oscillating figures can damage Ireland's reputation internationally, with comments such as Professor Krugman's highlighting a belief among many economists that official figures are not reflecting the real performance of the Irish economy and are being affected by various accounting manoeuvres by international companies. This is also happening at a time when Ireland's tax arrangements with multi-nationals are also in the spotlight because of the European Commission's decision onApple's tax arrangements here.

2)Great expectations: Governments and other institutions need accurate figures in order to develop appropriate policies – inflated figures may raise public expectations about how much money is available to spend, just as a dramatic plunge in the figures could paint an overly negative picture of the economy.As Stephen Kinsella wrote in the Sunday Business Post earlier this year: "The state’s view of itself via its statistics has been compromised." After the 26.3 per cent figure was released, Finance Minister Michael Noonan tried todampen down expectations ahead of the Budget.

3)Opportunity knocks?: GDP figures are the internationally recognised measure of economic performance, and are used by bodies such as the European Commission to calculate other important benchmarks such as the country's debt levels. On the positive side, the CSO said that, as a result of the new figures, the country's debt to GDP ratio would drop to 80 per cent. Writing in The Sunday Business Post earlier this summer,Sean Whelan described this figure as "one of the few statistics anyone in the outside world actually looks at", adding that the reduced figure could give Ireland more headroom to borrow for investment. On the other hand...

4)Cold hard cash: After the revised GDP figures, Finance Minister Michael Noonan confirmed that Ireland would have to contributean extra €280m to the EU budget next year. This is because the amount member states contribute to the EU budget is largely determined by GDP, and a higher GDP figure means a bigger contribution.

5)Taxing questions: At a time when the tax affairs of all multinational companies are being closely examined by the EU and other bodies such as the OECD, GDP figures which are swollen by multi-nationals' money movements may put further increase the pressure on Ireland from other countries to change its tax offering, especially the 12.5 corporation tax rate.