Ireland’s economy is expected to contract slightly this year before rebounding to growth over the next two years, according to the latest economic forecast from the European Commission.
The assessment by the EU’s executive arm said the State’s public finances had been bolstered by “positive surprises” this year, such as the final court ruling that Apple owed Ireland €14 billion in back taxes.
A previous economic forecast in May said Ireland’s economy was expected to grow by 1.2 per cent this year. That has been reversed in the latest outlook, which now states that Ireland’s economy will shrink by 0.5 per cent instead.
The commission’s autumn forecast said Irish GDP (gross domestic product) would grow by 4 per cent next year and by 3.6 per cent in 2026. The fall in GDP this year was put down to “ongoing volatility” in sectors dominated by multinational companies.
The commission said modified domestic demand, which is a better reflection of the real domestic Irish economy, increased by 1.9 per cent in the first half of this year. Domestic economic demand is now forecast to grow by 2.8 per cent in 2025 and 3 per cent in 2026, the commission said.
The latest economic forecast comes at a time when EU leaders and officials are bracing for possible shocks from Donald Trump’s return to the White House.
During the campaign, the president-elect of the United States spoke about plans to slap tariffs of up to 20 per cent on imports from abroad, in a move that would hit Europe – and particularly Ireland as a major exporter to the US – hard.
Speaking on Friday, Paolo Gentiloni, EU commissioner for the economy, said any turn towards protectionist tariffs would be “extremely harmful” to both the US and EU.
The former Italian prime minister said the transatlantic trade relationship was a “stabilising force” in the world and the commission would work with the new Trump administration in a “great spirit of co-operation”. However, he said the EU was ready to respond to measures taken by the next US president on trade.
Irish exports had “rebounded” in the first half of the year, in part due to a return to growth in the pharmaceutical sector, the commission’s assessment said.
Ireland’s budget was recorded as registering a strong surplus, a large share of which came from the one-off windfall of the Apple tax judgment, following a final ruling by the European Court of Justice.
“Headline investment declined sharply in the first half of 2024, largely due to intellectual property exports in the second quarter of the year,” the commission said. It noted projections around intellectual property investment, such as in the tech sector, carried “considerable uncertainty”.
Looking at the overall picture, the commission said the EU economy was forecast to return to “modest growth” after a period of prolonged stagnation, while the rate of inflation continues to slow. The forecast projected GDP growth of 0.9 per cent for this year, with economic activity expected to expand by 1.5 per cent next year.
For the second year in a row, the German economy was forecast to shrink as it faces weak demand for manufacturing goods both domestically and abroad. In France the commission said real GDP will increase by 1.1 per cent this year, but decline by 0.8 per cent next year.
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