Quarterly Bulletin 2025:2 – Slower pace of domestic growth amid trade tensions and global uncertainty

• Forecast for domestic economic activity revised down as heightened uncertainty weighs on investment. Modified Domestic Demand (MDD) is forecast to grow by 2 per cent in 2025 and 2.1 per cent on average in 2026 and 2027.
• Outlook is sensitive to the threat of escalating geoeconomic fragmentation. In the case where trading conditions deteriorate growth would slow to around 1 per cent per annum.
• Opportunities for domestic policy to build long-term resilience in the economy and public finances.

The Central Bank has today (19 June 2025) published its second Quarterly Bulletin of 2025. On the launch of the Quarterly Bulletin, Robert Kelly, Director of Economics and Statistics said: 

“Policy uncertainty, in particular related to significant shifts in US trade policy, has directly shaped headline economic activity in Ireland so far in 2025.  The exceptionally strong exports and GDP outturn in the first quarter in part reflected the response of multi-national enterprises to the prospects for the imposition of tariffs or other measures later in the year.  Despite this front-loading of activity, which was most notable in the pharmaceuticals sector, longer-term market expectations for the profitability of MNEs across pharma, med-tech and ICT manufacturing operating in Ireland are more negative than previously in-light of the shifting US policy stance.”

Domestic economic activity remained broadly steady in the first quarter of 2025.  Economic activity expanded by 1 per cent in Q1 2025 compared to the same quarter in 2024. The growth in activity was unevenly distributed, with consumer and government expenditure contributing to the expansion while modified investment contracted. Employment grew by 3.3 per cent in 2025 Q1, and while unemployment remains low at 4.3 per cent in Q1 2025, labour demand continues to moderate in the first months of 2025.

A sharp rise in pharmaceutical exports to the US resulted in a large increase in headline GDP in Q1 2025.  Most notably, merchandise exports surged in the early months of 2025, up 64 per cent year-on-year in Q1, entirely driven by exports to the US.

Housing completions are forecast to be 32,500, 37,500 and 41,500 in 2025, 2026 and 2027, respectively. This represents a downward revision compared to the forecast in March 2025. Underpinning this downward revision is that dwelling completions came in below expectations for Q1 2025, while commencements dropped sharply. This latter development reflects the largely anticipated effect of the ending of the development levy and Irish Water rebate. The housing projections are subject to considerable downside risk given current bottlenecks in housing supply and infrastructure.  Increasing productivity in the construction sector is essential to enable it to fulfil the increasing demand for housing and related water, energy, transport, communications and infrastructure.  These are immediate constraints on the economy’s capacity to grow and to protect Irish living standards broadly and sustainably both now and in the future. 

Domestic economic policy has an opportunity to achieve the complementary aims of maintaining sustainable economic growth and building longer-term resilience in light of the major transitions the economy is undergoing.  Fiscal policy requires carefully balanced calibration to ensure sufficient economic and fiscal space to sustainably achieve the necessary rise in public capital expenditure needed to address infrastructure gaps in housing, water and energy over the near-to-medium term, including those arising to address climate change.  At the same time, the need to reduce the risks to the public finances from an excessively narrow tax base has become more immediate, given the reliance on corporation tax receipts from a small number of MNEs, which may be more vulnerable in light of geoeconomic fragmentation. 

Ends-

In a Signed Article issued alongside the Bulletin titled “Managing Risks and Building Resilience in the Public Finances (PDF 0.98MB)” the authors¹ find that strong economic growth and exceptional corporation tax receipts have benefitted the public finances over the last decade but these benign conditions are threatened. Risks to the public finances and the economy from Ireland’s reliance on multinational firms have risen given recent developments in the US and the more disruptive international economic environment. A loss of corporation tax alongside weaker economic growth and lower MNE investment would result in a deficit in the public finances of over 4 per cent of national income by 2030. To improve long-term growth and the resilience of the economy, increases in public investment that address current infrastructure gaps are needed. These should be implemented in a way that is consistent with long-run economic and fiscal sustainability. With current full-employment conditions and in the absence of offsetting revenue-raising measures, large increases in public investment on top of existing plans could cause overheating pressures. If economic activity slows, then increases in public investment could be accommodated with lower inflationary risks and would help to support demand. Implementing measures to broaden the tax base would improve the resilience of the public finances should Corporation Tax revenue decline. Moreover, it would help to ensure that growing public expenditure needs from an ageing population, to fund new infrastructure and to meet emission reduction targets can be sustainably met.

[1] Laura Boyd, Thomas Conefrey, Ronan Hickey, Matija Lozej, Boryana Madzharova, Niall McInerney and Graeme Walsh

Previous Quarterly Bulletins are available to view on the Central Bank’s website.

Further information

Media Relations: [email protected]

Úna Quinn: [email protected] / 086 067 4008

Elaine Scanlon: [email protected] / 087 213 6313

“With the global economic backdrop continuing to shift, there is heightened uncertainty on the outlook for the Irish economy.  As a small, open economy with significant trading and investment relationships with the US and EU, Ireland is experiencing the fallout from changing geoeconomic relationships and priorities.  During this transition, analysing the events, announcements and data to extract meaningful signals from on the prospects for the various sectors of the economy will remain difficult.  However, with near-to-medium term headwinds for economic activity from both international and domestic sources, opportunities arise for domestic policy to build long-term resilience in the economy and public finances by bolstering the supply side of the economy.”