Central Bank forecasts lower economic growth and fewer homes built in coming years

Reuters

Domestic economic growth is expected to slow to around 2 per cent this year and next if the United States hits European Union exports with a 20 per cent tariff, and could fall much more steeply if a deeper trade war follows, the Central Bank of Ireland said.

The Republic is among the countries most exposed to US president Donald Trump's sweeping economic policies, with a significant proportion of employment, tax receipts and exports dependent on a cluster of mainly tech and pharmaceutical multinationals.

The Central Bank also downgraded its forecasts for new home completions in the near term.

It predicted completions would increase to 32,500, 37,500 and 41,500 in 2025, 2026 and 2027 respectively but this represents a downward revision on its previous forecast in March.

The downgrade was driven by a fall-off in completions and commencements in the first quarter of this year, the bank said.

The Central Bank cut its estimate for 2025 modified domestic demand (MDD) – its preferred gauge of economic performance – to 2 per cent from the 2.7 per cent estimated in March and its 2026 forecast to 2.1 per cent from 2.5 per cent due to the uncertainty weighing on investment.

That was broadly in line with recent Department of Finance forecasts. As a member of the EU, Ireland faces tariffs of 10 per cent on around a quarter of its exports that could rise to 20 per cenr after a 90-day US pause ends on July 8th.

The Central Bank said MDD would fall to just 0.8 per cent this year and 1 per cent in 2026 in an adverse scenario where a 20 per cent tariff is extended to all goods, taking in key sectors for Ireland such as pharma and semiconductors, and the EU retaliates with tariffs.

The Republic's booming corporate tax revenues, which have risen almost seven-fold over the last decade, could be a major vulnerability in that scenario as most of the tax is paid by US multinationals.

The Central Bank said projected big budget surpluses could turn into a deficit of 4 per cent of national income or €17.7 billion by 2030 if the adverse economic scenario is accompanied by a loss of the recent windfall corporate tax receipts and a 20 per cent fall in foreign multinational investment.

"This is a severe scenario but it is not the extreme scenario where you would see investment leave the State," Central Bank director of economics Robert Kelly said on Thursday.

The bank also estimated that gross domestic product – which officials disregard due to the way multinationals distort the data – would jump eight-fold to 9.7 per cent this year due to a surge in exports to the US that data suggests was driven chiefly by ingredients used in weight-loss and diabetes drugs.

Some US drugmakers with a presence in Ireland have reported stocking up ahead of threatened tariffs.