Economic outlook 'clouded' by likely deterioration in trade
US president Donald Trump is expected to outline tariffs on the EU on April 2 next week. Photo: AP/Jacquelyn Martin
The Irish economy entered 2025 in a robust position but the “likely deterioration” in international trading conditions, triggered by US president Donald Trump implementing tariffs, will see a reduction in domestic economic growth as well as subdue global investment and consumption, the Economic and Social Research Institute (ESRI) has said.
According to the latest quarterly economic commentary, the ESRI said that Ireland’s modified domestic demand (MDD) - the preferred metric to measure the domestic economy - will grow by 3% this year on the basis that no tariffs are put in place on trade between the US and the EU. This is a revision from the 4% growth the ESRI expected at the end of 2024.
MDD was also expected to grow by 2.8% next year providing no tariffs were put in place. GDP was expected to grow by 4.1% this year and by 3.9% next year.
Conor O’Toole, associate research professor at the ESRI, said the robustness of the Irish economy “provides us with a kind of insulation against the international activity but the downside risks to the current forecasts are extremely high, and the outlook that we're putting forward is clouded by this international trade situation”.
It is very likely that tariffs will be imposed between the US and EU. Mr Trump has said the US will unveil its tariffs on the EU on April 2 with the EU expected to retaliate in the middle of next month.
“The likely deterioration in global trading conditions, which will almost certainly ensue from any trade war, will have adverse implications for the domestic economy. Furthermore, the general uncertainty caused by a changing US economic policy is likely to subdue global activity, lower investment and consumption,” the ESRI said.
Assuming a 25% bilateral tariff on all goods traded between the US and the EU, the ESRI expects MDD to grow by just 2.8% this year and by 2.1% next year.
The institute said the overall impact of tariffs will be greater for the Irish economy if the US specifically targets pharmaceutical products given they account for a high proportion of the country’s exports.
Mr O’Toole said sectors directly impacted by tariffs are “likely to have lower output, investment and employment” while other sectors will suffer indirect impacts as a result of this trade shock passing through the economy.
"The price of those imports is likely to rise. That could have an impact on inflation, and therefore the European Central Bank may have to react through the interest rate channel and this could have impacts on the Irish economy,” he said.
In addition, the ESRI is also concerned about US tax policy incentivising the repatriation of intellectual-property-related profits currently held in Ireland which “could significantly impact Irish corporate tax revenues”.
Aside from the trade uncertainties, housing is also a key area of focus for the ESRI.
The ESRI said one possible impediment to increasing housing output is the funding gap - the actual level of credit available compared to the amount required to meet housing demand.
The institute said that at least €5bn in additional funding is required for housing output to increase by 20,000 units. At present, the domestic financial sector lends approximately €1.8bn for residential construction.
The ESRI is forecasting that this year will see over 34,000 new homes and over 37,000 next year. The Government has set a target of 300,000 new home completions by 2030.
