The Central Bank of Ireland published its third Quarterly Bulletin of 2025, updating its macroeconomic and fiscal projections amid new tariffs on EU-US trade and broader geoeconomic fragmentation. It revised up its 2025 Modified Domestic Demand (MDD) forecast to 2.9%, while expecting growth to slow to 2.2% in 2026 and 2.4% in 2027, and highlighted downside risks to inward investment and the public finances given reliance on large corporation tax receipts. MDD rose 3.8% in the first half of 2025 year on year, with employment up 2.8%, but easing indicators include a lower private-sector vacancy rate and moderate activity in domestically oriented sectors. Consumer spending is forecast to grow by over 2% per year through 2027 as real disposable incomes rise, while unemployment is expected to edge up from around 4.5% but remain below 5%. HICP inflation is projected at 1.4% in both 2026 and 2027, with services inflation stabilising around 2.7%; food price inflation is expected to moderate. The outlook for modified investment in 2025 was revised up to 2.4%, while projected housing completions are 32,500 in 2025, 36,000 in 2026 and 40,000 in 2027, with water and energy infrastructure constraints expected to be more binding in 2026 and 2027. On the fiscal side, the underlying general government balance is projected at a deficit of -3.3% of GNI* in 2025 and -3.7% by 2027, reflecting higher government expenditure and slowing tax revenue growth excluding excess corporation tax. A signed staff article accompanying the Bulletin estimates Irish national income could be around 1% lower over the long term under the new US tariff regime, with larger negative effects modelled for foreign-dominated pharmaceuticals and chemicals and notable impacts for domestically dominated food and beverages. The analysis suggests existing foreign investment is unlikely to fall materially, but the loss of Ireland’s attractiveness as an export platform for new US foreign direct investment remains a key medium-term risk.
Central Bank of Ireland 2025-09-18
Central Bank of Ireland raises 2025 Modified Domestic Demand forecast to 2.9% while warning of tariff driven investment and fiscal risks
The Central Bank of Ireland's third Quarterly Bulletin of 2025 revises the 2025 Modified Domestic Demand forecast to 2.9% amid new EU-US trade tariffs and geoeconomic fragmentation. It highlights downside risks to inward investment and public finances due to reliance on large corporation tax receipts. The Bulletin projects a fiscal deficit of -3.3% of GNI* in 2025, with potential long-term national income reduction under the new US tariff regime.