Quarterly Economic Commentary, Summer 2025

Key points from summer 2025 Commentary 

• Most of the key indicators for the Irish economy continue to point to its ongoing strength and expansion. However, the uncertainty generated by the Trump administration’s changing stance on tariffs is dampening sentiment internationally, and has prompted many downward revisions to global growth forecasts. 

• In the current Commentary, we make the technical assumption that tariffs and global growth follow the ‘reference forecast’ from the recent International Monetary Fund (IMF) World Economic Outlook, April 2025. This is based on information from mid-April 2025 globally, and for Ireland implies a 10 per cent tariff on goods exports to the US with an exemption for pharmaceuticals. We recognise discussions around EU–US trade are ongoing, and that the situation is extremely fluid and uncertain. The IMF, and other forecasters, have downgraded their growth outlook generally and we have reflected this in our forecasts since March 2025. 

• Under these assumptions, we expect modified domestic demand (MDD, our preferred measure of economic activity) to grow by 2.3 per cent in 2025, a lower rate than that envisaged in our spring Commentary (3 per cent) due to the deteriorating international outlook. We expect MDD growth of 2.8 per cent in 2026. Clearly, if the trade wars between the US and its trading partners intensify, this forecast will need to be revisited. 

• We still expect exports to grow in 2025 under our baseline, given the structure of Ireland’s exports. With both trade in services and in pharmaceuticals currently outside the scope of the Trump announcements, Ireland is insulated to some degree in the short run. This could change, however, and longer term US policy shifts could threaten the Irish foreign direct investment (FDI) led economic model if both tariff and non-tariff measures act to re-shore activity by US firms back to the US. 

• Based on the anticipated growth, we see employment increasing again in 2025 (+66,000) and 2026 (+45,000). Unemployment is expected to Quarterly Economic Commentary: Summer 2025 | x remain low at just over 4 per cent across the forecast horizon. Nominal wage growth is expected to exceed price inflation in both 2025 and 2026, resulting in real wage growth of 3.5 per cent in 2025 and 2.3 per cent in 2026. 

• The number of housing completions in 2024, at just over 30,000, was disappointing and we remain somewhat pessimistic about the scope for substantial growth in 2025 and 2026. We have reduced our forecast from our previous Commentary for the present year, and now expect 33,000 completions in 2025 and just under 37,000 completions in 2026, but there are considerable downside risks. 

• Total tax revenues continue to perform well, reflecting the strength of the economy. Looking ahead to 2026, there are suggestions that corporate tax revenues could climb again, due in part to the ongoing rollout of the Organisation for Economic Co-operation and Development’s (OECD) base erosion and profit shifting (BEPS) reforms. However, corporate tax revenues are lower in the first five months of this year compared to January to May 2024. It is too early to draw a strong conclusion on the likely corporate tax take for the year, but the dip in May served as a reminder of the potential vulnerability in the public finances arising from the windfall element. 

• In our overall assessment, while reflecting on the current strengths of the economy, we also look at three concerns – the Trump tariffs, the outsized impact of windfall corporate revenues on the headline public finance numbers and housing completions. On housing completions, we discuss how labour constraints in a full employment economy might require strict prioritisation in a revised National Development Plan (NDP) if labour resources are to be available to meet housing targets. 

• Finally, given the importance of exports at this time for the Irish economy, in Box A we use Central Statistics Office (CSO)/Eurostat data to look at the characteristics of Ireland’s exporting firms. This research further highlights the issue of concentration risk in terms of Ireland exports, with a relatively small group of firms accounting for a high proportion of exports. This risk is higher than in other small-open economies.