Irish economy to grow more slowly due to US uncertainty - Central Bank
The Central Bank of Ireland said changes in US policies, particularly around tax, could have a significant impact on the economy as a potentially large amount of corporation tax could be removed quite suddenly leaving a massive hole in the public finances. File photo: Leah Farrell/Rollingnews.ie
The Central Bank of Ireland has revised down growth forecasts for the domestic economy this year given the uncertainty coming out of the US and the potential impact of tariffs on Irish exports.
According to the Central Bank’s latest quarterly economic bulletin, modified domestic demand (MDD) - the preferred metric for measuring the domestic economy - is forecast to grow by 2.7% this year and 2.4% next year. This is down from the 3.1% and 2.7% growth forecasted for each of those years in the previous economic bulletin.
Robert Kelly, director of economics and statistics at the Central Bank, said the revision downwards is a “direct result of uncertainty” and some of that is due to the uncertainty on what the tariff rate on Irish and European exports to the US might be.
"We are featuring into the forecast what we believe is the uncertainty generated now,” he said.
"We've accounted for this level of uncertainty in the central outlook, which has reshaped our view of the economy onto a lower growth path, especially in the shorter run.”
On top of that, Mr Kelly said changes in US policies, particularly around tax, could have a significant impact on the economy as a potentially large amount of corporation tax could be removed quite suddenly leaving a massive hole in the public finances. It could also hurt foreign direct investment into the country.
While the economic outlook is unclear due to global events, the Central Bank said the domestic economy for the most part continues to perform well.
Mr Kelly said this is most evident in the labour market, with “the unemployment rate remaining at historical lows over the longest period of time since data are available”.
“It is expected that steady employment growth will continue alongside growth in wages consistent with productivity developments and contained profit margins.”
Headline inflation is projected to rise to 2.2% this year before declining to 2.1% next year, and further easing to 1.4% in 2027. The Central Bank said risk to growth remains “firmly to the downside” as the risk of more pronounced global trade tensions has risen.
Given the outlook and risks, the Central Bank said public policy needs a clear orientation to build long-term resilience in the economy and the public finances.
In the area of housing, the Central Bank has also revised downward its expected completions this year and next owing largely to slower momentum in 2024. Housing completions are forecast to increase to 35,000 and 40,000 in 2025 and 2026, respectively.
The previous bulletin forecasted housing completions to reach 37,500 this year and 41,000 next year.
“Several factors are restraining housing supply including low productivity in the construction sector, delays in utility connection, delays in planning system and a shortage of zoned and serviced land in high-demand areas,” the bulletin said.
