Quarterly Economic Commentary, Spring 2025

Forecast overview

• At the start of 2025, the Irish economy is in a strong position. Unemployment stands at 3.9 per cent, while real income growth is set to exceed 3.5 per cent in the current year. Exchequer returns continue to increase quite significantly for the opening period of the present year.
• Therefore, as a baseline, we expect modified domestic demand (MDD) to increase by 3.0 per cent in 2025 and 2.8 per cent in 2026. These forecasts are conducted on the assumption of no trade tariffs being imposed between the United States (US) and the European Union (EU).
• However, the international climate is particularly fraught at the present time, with the incoming US administration outlining a series of tariffs on certain countries.
• 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. We build this into our base case forecasts regardless of the final tariff position.
• The overall impact of a tariff war on the Irish economy will be compounded if the US specifically targets pharmaceutical products as part of any proposed tariff strategy.
• We provide an alternative series of forecasts for the traded sector of the Irish economy, highlighting the potential implications of the imposition of a 25 per cent bilateral tariffs on goods. In this alternative scenario, drawing on Egan and Roche (2025), MDD growth is forecast to be 2.8 per cent in 2025 and 2.1 per cent in 2026.
• Housing supply in 2024 was somewhat disappointing, with completions coming in at 30,330 units, heightening fears that housing costs will continue to escalate in the domestic economy.
• While numerous factors are likely to be affecting housing supply, in two Boxes in this Commentary, we address the ‘funding gap’ and the policy around rent controls, both of which are likely to weigh on supply.1
• A further Box to the Commentary by O’Shea assesses the contribution to domestic output growth of increasing participation rates among the older cohorts of the Irish labour market.