Irish economy faces shaky future as two factors set to curb consumer spending

Extra.ie​

26-05-2025

The Irish economy faces a shaky future over global tensions as well as US threats to impose a 50% tariff on American imports from the EU.
Political uncertainty over Donald Trump's tariffs, and the ongoing conflicts in Ukraine and Gaza, are likely to see Irish consumer spending decline until 2026, according to AIB's latest Economic Outlook Report, published today.
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It said international volatility remains high, and because of that, consumer spending and business investment growth in Ireland are expected to cool this year.
US President Donald Trump. Pic:However, AIB said the Irish economy has built up resilience to withstand a potential trade shock in the short term.
The bank's chief economist, David McNamara, said: 'The global macro backdrop has shifted considerably since our last Economic Outlook in autumn 2024.
'The uncertainty created by the dramatic shift in US trade policy and the responses of other key trading blocs is expected to dampen global growth in 2025 and 2026.
AIB. Pic: Artur Widak/NurPhoto/Shutterstock
'Given the globalised nature of the Irish economy, we expect significant volatility in GDP as exporters seek to get ahead of potential trade restrictions this year.'
Mr McNamara added: 'For the domestic economy, we expect a cooling in growth this year, as ongoing uncertainty dampens both consumer spending and business investment growth.'
The bank also forecast domestic demand will grow by 2.3% this year, slow to 2% next year, but bounce back to 2.6% in 2027.
Pic: Shutterstock
It also said that the labour market will continue to grow, but given the expected easing in economic growth, AIB expects a more modest expansion in employment, which is already at record levels.
The bank said that following a 2.7% increase in jobs in 2024, it expects employment levels to grow by just 1.8% in 2027.
AIB said Irish households are expected to reduce spending, while some business sectors may delay planned investment, particularly those in export-oriented areas.
On the issue of trade with the US – Ireland's single largest trading partner, with more than € 95 billion of imports and exports last year – AIB said tariffs and future transatlantic tax policy are the main downside risks to the Irish economy.
The report said that some exporting indigenous Irish sectors, such as agrifood, are exposed to US tariffs, but that the key risks centre on Ireland's multinational-dominated sectors.
'These sectors, which account for [around] 12% of total employment, are responsible for 50% of GDP and [around] 80% of exports generated in the economy.
There is a heightened risk of tariffs on the Irish pharma sector, which, along with technology services, dominates multinational sector output,' it said.
AIB added that the key medium-term risk to the Irish economy is the concentration of tax revenue from corporation tax and income tax from staff working for multinationals.
However, it also said the economy has built up resilience to withstand potential trade and foreign direct investment (FDI) shocks in the short run.
'However, permanent tariffs or changes to the US tax code which would reduce Ireland's FDI attractiveness would pose a greater longer-term challenge,' it said.
The bank added: 'The latter scenario would require diversifying Ireland's FDI and export base to non-US markets, a review of our industrial model, further fostering of indigenous enterprises, and a focus on boosting competitiveness.'