Ireland’s medium-term economic outlook: Risks and opportunities

The objective of this Economic Outlook is to provide macroeconomic
projections and scenarios of potential future paths for the economy over a
ten-year horizon. Given the highly globalised nature of the Irish economy,
the potential impacts associated with external shocks feature prominently.
Current geopolitical tensions and ongoing developments in international
trade relations raise concerns regarding the risks ahead for the global
economy. These risks pose a great challenge for the Irish economy, given its
reliance on multinational corporations and their significant contributions to
the overall fiscal balances.

Before describing the macroeconomic projections and scenarios, it is
important to stress that the Economic Outlook is not a forecast of future
economic performance. Instead, it comprises projections of what might
happen subject to a broad range of underlying assumptions. Understanding
the economy’s vulnerabilities and the dynamics of how economic shocks play
out across sectors is an important input into the policymaking process.

An underlying assumption of our baseline projection is that the global
economy continues to evolve along its current pathway without any further
economic shocks; for example, related to tariffs, world demand or exchange
rates. An assumption of no further shocks is unrealistic, but it enables us
to project a ‘business as usual’ pathway for the economy from which we
can assess the impacts of potential challenges or opportunities facing the
economy. Our baseline projection is for an annual average economic growth
rate of 2.3 per cent in modified gross national income (GNI*) out to 2030
and 2.1 per cent from 2031 to 2035. Despite recent international upheavals
and substantial domestic challenges, the outlook for the economy appears
relatively favourable in the absence of any unforeseen shocks. There is
a cautionary note to be added, however. While headline public finance
indicators are strong, budget surpluses are based on windfall corporation tax
receipts. Windfall taxes by definition could disappear rapidly, meaning that
a healthy headline general government surplus of e5 billion could become a
deficit of €13 billion if the windfall receipts disappeared, based on figures from
Budget 2026. So while the baseline projects a potentially strong economic
pathway over the coming decade, there is a fundamental vulnerability in
public finances, in addition to other potential vulnerabilities, such as ongoing
trade tensions. It is also the case that longer-term challenges, such as an
ageing population and costs of climate change, are likely to become more
binding in the years after our projection horizon.

History tells us that unanticipated events can have major impacts on the
economy and society, with Brexit, the COVID-19 pandemic and the Russian
invasion of Ukraine recent examples. Our task is to consider what kinds of
shocks, events or policy initiatives (both positive and negative) could arise
and how they might impact the economy. The implications of three potential
external shocks are examined:

• A Global Slowdown scenario assesses the implications of a downturn in
world trade via an across-the-board reduction in export demand
• A Competitiveness scenario examines a loss of competitiveness relative
to our international trading partners
• A Multinationals scenario quantifies the impacts of reduced operations
of multinational corporations in the pharma and information and
communication technologies (ICT) sectors.

These risks are centred around foreign-owned multinational corporations,
which contribute around half of the overall gross value added within
the economy. The other half comes from the much more numerous
domestically owned firms, which are characterised by significantly lower
average productivity compared to the multinational sector. Improving
productivity within the indigenous sector could improve their share of
economic activity, which is examined in the following scenario:

• A Domestic Productivity scenario explores the potential outcomes
associated with improving the productivity of indigenous firms.