The Irish economy is expected to grow by more than expected this year, following stronger momentum in the second half of 2024, Bank of Ireland has forecast in a new report.
But the report warned that a potential breakdown in global trade relations posed a key risk to the economy, despite expectations that Ireland would remain relatively insulated from any tariffs imposed on US-EU trade.
The bank said it was revising upwards its projections for GDP to growth of 4.3 per cent, with modified domestic demand of 4 per cent and a 2.2 per cent growth in employment for the year, up from 1.7 per cent previously.
Distortions from contract manufacturing that had pushed Ireland’s GDP growth figures into negative territory had dissipated, it said, providing a clearer picture of the underlying growth in the economy.
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The revision follows a 3.5 per cent bounce in the economy in the third quarter of 2024, which had shown a contraction in five of the previous six quarters, with growth across both the multinational and indigenous sector.
Expansion is expected to have continued through the fourth quarter, and into 2025, with the unemployment rate trending downwards and core retail sales volumes up 1 per cent in the three months to December.
Bank of Ireland said consumption would rise 3 per cent over the year, fuelled by a 4.5 per cent increase in pay. That outstrips expected inflation of 2 per cent, and also reflects the expected impact of tax cuts on disposable income.
Domestic demand would also be supported by a 5 per cent rise in public spending in 2025.
Irish export performance was robust last year, with business services, computer services and pharmaceuticals growing over the year to the third quarter. Output in the traditional manufacturing sector was up 4 per cent.
Export growth is expected to be 3.4 per cent in 2025 and 5 per cent in 2026. There were concerns about rocky trade relations, with the threat of tariffs from the Trump administration looming over the EU. The report said Ireland should escape the worst of the impact though, should a trade war erupt with the US.
“We believe Ireland’s defensive export sector is relatively well placed to withstand tariffs,” the report said.
“However, a period of uncertainty on global tax and trade relations could lead some firms to delay investment and expansion plans. That said, Ireland’s economic expansion is increasingly domestically driven and job creation has consistently beaten forecasts. Here, delays to infrastructure and the National Development Plan could mean bottlenecks/capacity pressures increasingly weigh on growth.”
There was little cheer for house-hunters however, with property prices expected to grow by 5 per cent in 2025.
“This reflects our view the process of rising leverage in the mortgage market has yet to still fully play out, despite stretched affordability and 9 per cent price inflation in 2024,” the report said.
“Despite challenged housing market liquidity, Ireland is now seeing the strongest growth in bank lending to the household sector in 15 years, up 2.9 per cent in the 12 months to November, to €103 billion.”
The bank predicted more than 42,000 housing completions this year. Non-residential construction may be set for a fifth year of contraction.
“The Irish economy had far more momentum in late 2024 than expected, recording an exceptional pace of job creation. Also, beneath the statistical fog a broad range of export sectors have performed well, despite a very challenging global environment,” said Conall MacCoille, chief economist, Bank of Ireland.
“The risk to our forecasts remains a breakdown in global trade relations but far more radical tariff/tax proposals from the Trump administration would be required to harm the economy in 2025.”
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