Each December forecasts for economic growth in the coming year are published by both the ESRI and the Central Bank. Since the economic recovery began in 2013, these have undershot actual economic performance.

The Central Bank’s annual forecasts in respect of 2014-18 averaged 3.2 per cent, the ESRI’s averaged 4.1 per cent, while the CSO puts actual growth achieved at an average 5.4 per cent a year over this period.

Part of the reason for the downward bias in expected growth was the searing experience of the economic crisis. Policy-makers rapidly realised that it was much worse to be too optimistic than too pessimistic. Hence it is not surprising that the Central Bank has tended to be even more cautious than the ESRI.

Probably a more important reason for this consistent conservatism in forecasts has been that we have not fully understood why the Irish economy has continuously outperformed the economies of the rest of Europe. For some, especially foreign observers, there has been a belief that it has all been due to smoke and mirrors.

The picture that is emerging as the fog clears is relatively reassuring

However, the exceptionally strong performance of employment shows that there has been very real progress, and the growth in real average earnings for those in employment means that many people are now seeing a modest improvement in their standard of living.

However, one cost of this underestimation of the growth potential of the economy has been that there was a very slow realisation of the urgency of ramping up investment in housing, sewerage systems, water supply and public transport. The economy has outgrown its clothes, and you can’t just buy new “clothes”, they must be built. Hence, even with rising incomes many people still face serious housing problems.

Multinational enterprises

The challenge in understanding the behaviour of the Irish economy owes much to the fact that the basic data needed for such analysis, the National Accounts, have been overtaken by a very dense globalisation fog. The traditional accounts mix in activity abroad by foreign multinational enterprises (MNEs) based here with output in sectors such as farming and retailing.

It is only now, after much work by the CSO in preparing a wide range of additional information, that we are beginning to see what is really going on. Fortunately the picture that is emerging as the fog clears is relatively reassuring.

Firstly, the new detail in the CSO’s Institutional Sector Accounts allows us to measure how much of our national output is generated by domestic firms and how much by MNEs.

The CSO data show that multinationals account for around 20 per cent of our income, a similar share to what it was in 2013. They also show that domestic firms are playing a major role in the rapid growth we are experiencing. This is encouraging.

Secondly, the figures show that while foreign MNEs account for 20 per cent of our output, their wage bill is 25 per cent of the total: on average these firms pay higher wage rates.

The CSO estimate that in 2017 average earnings in foreign MNEs were around €50,000, and up to €150,000 a year in aircraft leasing. In Irish-owned firms average earnings were closer to €35,000 a year. Much of the difference reflects the fact that foreign multinationals recruit some of the most skilled in the labour force.

There remain a range of serious dangers: Brexit, major disruption to world trade, or a sudden loss of corporation tax revenue

A third feature of the economy, apparent from the revised data, is that output is broadly based: it is not just due to the pharmaceutical and IT sectors. It includes Irish-owned manufacturing, including food processing, distribution, transport and accommodation, and a wide range of business services. The broader the spectrum of growth the less likely that a shock to a specific sector could derail progress.

Financial sector

A fourth feature of the economy is that the financial sector accounts for nearly 10 per cent of output – significantly higher than for many other EU countries. Within that sector the foreign-owned financial sector accounts for under half of the sector’s output, and it has not changed significantly as a result of Brexit-related relocation to Ireland.

While the picture of the Irish economy that the latest figures portray is mildly reassuring, there remain a range of serious dangers that forecasters have focused on in recent years: Brexit, major disruption to world trade, or a sudden loss of corporation tax revenue.

In particular, there is widespread scepticism that a Brexit trade deal, and thus an orderly Brexit, can be concluded by the end of next year. However, while all these dangers remain very real, it is now clear that these demons have been postponed till at least 2021. Happy 2020!