Global uncertainty and trade policy to affect Irish economy

March 27, 2025

Macroeconomics
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The Irish economy entered 2025 in a robust position with a strong labour market. However, the trend towards deglobalisation and protectionist trade policy is likely to adversely affect the Irish economy.

  • Our baseline forecast is for Modified Domestic Demand growth of 3.0 per cent in 2025 and 2.8 per cent in 2026. This forecast assumes a continuation of current trade policy but does account for the damaging effect of higher uncertainty on global economic activity, investment and consumption.
  • We provide a series of forecasts for an additional scenario of a 25 per cent bilateral tariff on goods. In this scenario, we forecast Modified Domestic Demand growth of 2.8 per cent and 2.1 per cent for 2025 and 2026.
  • The overall impact of tariffs will be greater for the Irish economy if the US specifically targets pharmaceutical products.

Housing remains a key area of focus for the Commentary:

  • Housing completions are forecast to increase from 30,330 last year to over 34,000 in 2025 and over 37,000 in 2026 although the market faces ongoing structural challenges.
  • In a Box, Slaymaker assesses the advantages and disadvantages of three policy options for reform of the current system of Rent Pressure Zones. Policymakers face a trade-off between protecting affordability for current tenants and the need to increase supply in the rental sector.
  • In another Box, McQuinn analyses the domestic funding gap in the Irish housing construction market and argues in favour of public policy that can crowd in private investment to maximise the return to the State on capital investment in housing.

The inflation rate has ticked upwards in the early months of 2025 and it is now close to 2 per cent. We expect Consumer Price Index (CPI) inflation to rise by 2.0 per cent in 2025 and 2.2 per cent in 2026. Inflation is mainly concentrated in services rather than in goods, particularly in domestic non-traded services like restaurants and hotels.

The unemployment rate is projected to remain close to 4 per cent over the next year. In a Box, O’Shea analyses the importance of increased labour force participation among older age groups for future growth.

Commenting on the report, author Kieran McQuinn of the ESRI stated: “While the Irish economy is in a robust state, it faces significant uncertainty in light of changing international trading conditions.”

Commenting on the report, author Conor O’Toole of the ESRI stated: “While the Irish economy entered 2025 in a relatively positive position, the outlook is clouded by international developments. Changes in US tariffs and policy will have a notable impact on Ireland and could hurt key sectors such as pharmaceuticals."