The Irish economy is expected “to grow exceptionally” this year amid the front-loading of exports into the US ahead of tariffs.
In its latest set of autumn forecasts, the European Commission predicted the economy here would expand by 10.7 per cent in gross domestic product (GDP) terms in 2025, eight times the 1.3 per cent rate projected for the euro area overall.
The EU’s executive arm said the forecast, which tallies with the Department of Finance’s own prediction, reflected “strong export activity in the first half of the year”.
However, as the front-loading effect unwinds, growth here is expected to moderate to 0.2 per cent in 2026, “reflecting a technical base effect from 2025 dynamics, before stabilising at 2.9 per cent in 2027,” it said.
READ MORE
Irish goods exports to the US rose by 153 per cent to €71 billion between January and May as companies rushed to get product into the US market ahead tariffs.
The Commission noted that real GDP here rose by 18.5 per ent in the first half of 2025, “driven by pharmaceutical exports to the US, likely reflecting front-loading in anticipation of US tariffs”.
“The domestic economy also performed robustly, supported by strong private consumption and growth in modified investment (which excludes the more volatile intangible and aircraft leasing components),” it said.
The Commission said the recent EU-US trade agreement helped ease tariff-related uncertainty.
“While the impact of the US tariffs will vary across sectors, the overall effect on Ireland’s exports is expected to be limited, as its main goods exports to the US – notably pharmaceuticals – are not currently subject to these measures,” it said.
On the public finances, the Commission predicted a budget surplus of 1.5 per cent “strongly supported by a buoyant growth in corporate tax revenues”.
It said corporation income tax was set to be boosted by around €3 billion from 2026 onwards, as Ireland’s domestic top-up tax applying a minimum effective tax rate of 15 per cent for large corporate groups “is foreseen to start generating receipts”.
“Bracket creep will strengthen personal income tax revenue thanks to a continued growth in wages, while a slowdown is expected for VAT receipts as a range of reduced VAT rates are to enter into force in 2026,” it said.
The Commission cautioned that spending growth was set to outpace the growth in revenues “due to strong increases in permanent spending announced in the budget for 2026.”
“This includes public sector pay, social welfare payments and capital investment, the latter supported by the revised National Development Plan envelope,” it said.
Brussels also warned about the risk to the public finances from changes to the international trading environment and amplified by the concentration of revenue around a handful of firms.
“The vulnerability of Ireland’s public finances to international developments, such as shifting US trade and tax policies or the global tax rules, remains the key risk exacerbated by the significant concentration of revenues in few pharmaceutical and ICT companies,” it said.
On the wider euro zone economy, the Commission predicted the euro area economy would maintain its moderate expansion after weathering US president Donald Trump’s tariff turmoil better than expected.
Output will rise 1.3 per cent in 2025, 1.2 per cent in 2026 and 1.4 per cent in 2027, it said.
That’s an upgrade for this year compared with May’s prediction, and a small downgrade for 2026.
Inflation is seen at 2.1 per cent in 2025, as previously forecast, and should stick close to the European Central Bank’s 2 per cent target over the next two years. Officials cautioned, however, that the 2027 figure, which matches that goal, includes an upward effect from a new carbon-pricing system that governments and lawmakers want to postpone.
“Even in an adverse environment, the EU’s economy has continued to grow,” Economy commissioner Valdis Dombrovskis said. “Now, given the challenging external context, the EU must take resolute action to unlock domestic growth.”
Additional reporting by Bloomberg
