Tariff ‘uncertainties' could ‘weigh heavily' on Irish economic growth
Ireland is the country most exposed to the threat of US tariffs after Mexico and Canada, the OECD said on Tuesday, with exports to the US accounting for close to 20 per cent of GDP.
The group's economic outlook says
Donald Trump's
trade policies will damage consumer and business sentiment in Ireland and could 'weigh heavily' on economic growth if the US administration adds pharmaceuticals to the list of imports subjected to tariffs.
The Paris-based organisation also warned that public spending in the Republic is 'surging' as the new Government rolls out measures announced in Budget 2025. While the State's tax revenues remain strong, the impact of Mr Trump's trade agenda could lead to 'weaker' returns, putting pressure on the public coffers.
The OECD said these 'looming risks warrant greater fiscal prudence' on the Coalition's part.
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The organisation also warned that mounting uncertainties around tariffs are expected to weigh on consumer and business sentiment and 'restrain business investment and household consumption' in 2025 and 2026.
Due to the 'key role of a few foreign-owned multinationals in export-oriented sectors, like pharmaceuticals or advanced computer and business services', it said, new industry-specific tariffs could lower economic growth and 'adversely impact fiscal balances'.
In Ireland, GDP group is now projected to come in at 3.7 per cent this year, falling to 2.3 per cent in 2026. Modified domestic demand, which controls for the big distortions arising from the activity of multinationals, is projected to expand by 2.2 per cent in 2025 and 2.1 per cent best year, in 2026, below its long-term average of 2.7.
Gloablly. the OECD forecasts global economic growth to slow to 2.9 per cent this year from 3.3 per cent in 2024. It expects the rate of expansion in the US will tumble further, to 1.6 per cent from 2.8 per cent last year – an outlook that is significantly lower than its projection 2.2 per cent in March.
Washington's policies have tipped the world economy into a downturn clouded in heightened uncertainty, with the US among the hardest hit, it said in its twice-yearly economic outlook report on Tuesday.
'Weakened economic prospects will be felt around the world, with almost no exception,' chief economist Alvaro Pereira said. 'Lower growth and less trade will hit incomes and slow job growth.'
The assessment indicates how Trump's policies have become the most pressing problem for the global economy, with no easy solution in sight. The situation could yet be exacerbated by retaliation from US trading partners, a further erosion of confidence, or another bout of repricing on financial markets, the OECD said.
The club of 38 rich countries published its forecasts just as its members' ministers convene in Paris for an annual meeting. Top commerce officials are expected there include US trade representative Jamieson Greer and EU trade commissioner Maroš Šefčovič. Lin Feng, a representative from China's ministry of commerce, is also scheduled to attend.
'Agreements to ease trade tensions and lower tariffs and other trade barriers will be instrumental to revive growth and investment and avoid rising prices,' the OECD said. 'This is by far the most important policy priority.'
Yet the organisation also said that even if Trump reversed course on tariffs, the bonus in terms of growth and reduced inflation would not materialise immediately, due to a persistent drag from heightened uncertainty over policy.
For the US, the OECD said curbs on immigration and a sizeable reduction in the federal workforce add to the trade-related drag on the economy. It also cautioned that the budget deficit will expand further as the effect of weaker economic activity will more than offset spending cuts and revenues from tariffs.
Inflation in the US will also move higher this year, making it likely that the Federal Reserve will not resume easing policy until 2026, according to the OECD. That process may even be derailed if consumer-price expectations get de-anchored, it added.
Besides the fallout from global trade, the organisation also warned that fiscal risks are intensifying around the world, with 'tremendous' pressures for more spending on defence, climate and ageing populations. It called for governments to reduce non-essential spending and raise revenues by broadening tax bases. – Additional reporting by Bloomberg
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