Central Bank cuts growth forecasts amid US tariff threat

The Central Bank has cut its economic growth forecasts for 2025 and 2026 in response to the threat of US tariffs while warning an even bigger downgrade could be on the way if an all-out trade war ensues.

In its latest quarterly bulletin, the regulator warned that US policy uncertainty was now the chief threat to the Irish economy.

“While our current central forecast for the domestic economy continues to point to a steady pace of growth out to 2027, the shift in policy uncertainty weighs on the outlook for consumption, investment and exports, and leads to the slower growth now expected in comparison to our last outlook issued in December,” it said.

The bank said it expects the Irish economy to grow – in modified domestic demand terms – by 2.7 per cent this year (down from a previous forecast of 3.2 per cent) and by 2.5 per cent next year (down from a previous forecast of 2.7 per cent).

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These projections are subject to big downside risks given the potential scale of US president Donald Trump’s tariff plans and the likely response from the EU.

Mr Trump has threatened to impose blanket 25 per cent tariffs on all EU exports to the US.

As a small open economy with extensive trade and foreign direct investment (FDI) linkages with the US, the Irish economy, public finances and labour market are highly exposed to changes in US economic policy, it said.

“Depending on the specifics, the imposition of tariffs and non-tariff barriers could have a significant effect on the operations of MNEs (multinational enterprises) in Ireland, especially to the extent they alter the relative profitability of the MNE’s Irish activities,” the Central Bank said.

“This is even more likely to be the case if trade-related barriers are accompanied by broader tax and industrial policy changes further dis-incentivising investment and activity in Ireland,” it said.

The regulator’s assessment comes as the latest trade figures point to a surge in Irish exports to the US in January. The value of Irish goods flowing into the US rose by 81 per cent to €11.7 billion – the largest one-month total on record – amid suggestions multinationals here may be stockpiling produce in the US in advance of possible tariffs.

On the upside, the Central Bank forecast that the real income of households here would continue to rise, supported by further growth in employment and with inflation expected to remain below 2 per cent on average. It noted that headline unemployment had now remained under 5 per cent for the longest period in the State’s history, reflecting the strength of the labour market.

Inflation is projected to rise to 2.2 per cent in 2025 before declining to 2.1 per cent in 2026, and further easing to 1.4 per cent in 2027.

Despite a projected pickup in housing activity, overall investment is forecast to remain below required levels based on population growth and household formation, the bank said.

Housing completions are forecast to increase to 35,000, 40,000 and 44,000 in 2025, 2026 and 2027, respectively.

However, this represented a downward revision in 2025 and 2026 (of about 3,000 units) “owing largely to slower momentum in 2024″, it said.

“Several factors are restraining housing supply including low productivity in the construction sector, delays in utility connection, delays in planning system and a shortage of zoned and serviced land in high-demand areas,” it said.