Quarterly Bulletin Q3 2013

The Domestic Economy
Quarterly Bulletin 03 / July 13
17
Box B: The Impact of Redomiciled PLCs on GNP and the Current Account
By Thomas Conefrey
10,000
8,000
6,000
4,000
2,000
0
-2,000
-4,000
-6,000
-8,000
-10,000
-12,000
Box B Fig 2: Balance of payments, current
account
€ million
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Current account - official
Current account - adjusted
Published Balance of Payments data
suggest a major turnaround in the current
account of the Irish balance of payments
with a deficit of almost 6 per cent of GDP
in 2008 translated into a surplus of 4.4 per
cent of GDP by 2012. The profit inflows
of the Redomiciled PLCs also impact the
current account by reducing the figure of net
factor income outflows. When the impact
of Redomiciled PLC profits is stripped out,
the data suggest a less dramatic narrowing
in the resulting underlying measure of
the current account deficit. For 2012, the
current account adjusted for undistributed
profits, is estimated to have been broadly
in balance. This compares to the published
official estimates which show a surplus of
4.4 per cent of GDP (Figure 2).
Source: CSO, FitzGerald (2013) and Own Calculations.
Redomiciled PLC profits are likely to impact official estimates of GNP and the current account
for some time. As there is considerable uncertainty regarding the scale and timing of any
dividend outflows related to these retained profits, current projections for GNP and the current
account could be subject to revision.
Supply
Industry and Services Output
Irish manufacturing output, encompassing
both the modern and traditional sectors,
exhibited a high degree of volatility throughout
2012 and this pattern has persisted into the
first half of 2013. Output declined by 0.4 per
cent in the first quarter of this year following a
decline of 6.1 per cent in the final quarter of
2012. While the level of activity in the traditional
sector shows some signs of stabilisation in the
first half of this year, reflecting improvement
in the important UK market, the modern
sector continues to display an erratic growth
profile. Output growth in this sector can vary
significantly from month to month - in March
2013, for example, output declined 5.3 per
cent before increasing by 7.8 per cent in
April. The modern sector is dominated by
the production of pharmaceuticals where
a number of drug patent expiries had a
significantly negative impact over the last
year. The sharp decline in industrial output of
20.5 per cent in September 2012, which has
been partially reversed subsequently, was
to a large extent, due to the impact of drug
patent expiries. This was in turn reflected in a
subsequent fall in merchandise exports, which
declined by 9.4 per cent, year-on-year, in the
first quarter of 2013.