The Central Bank of Ireland has revised its economic growth forecasts downwards, citing global policy uncertainty, particularly linked to changes in U.S. trade and tax policies. The modified domestic demand (MDD) for 2025 has been adjusted from 3.1% to 2.7%, while GDP growth expectations are now set at 4.0% for both 2025 and 2026.
Concerns about U.S. policy shifts have been heightened due to criticisms aimed at Ireland’s trade surplus and tax strategies. Proposed tariffs and corporate tax changes may significantly affect U.S. multinational companies operating within Ireland, which are important for employment and tax revenues.
Rising Inflation Expectations
The bank also increased its inflation projections, with the headline HICP for 2025 raised from 1.7% to 2.2%, reflecting ongoing price pressures. Meanwhile, Ireland’s pharmaceutical exports rose by 68% year-on-year in January, driven by strong U.S. demand amid anticipated trade restrictions.
Modified Domestic Demand (MDD) is used to provide a clearer picture of the Irish economy by accounting for distortions from multinational corporations. This measure focuses on personal consumption, government spending, and modified gross domestic fixed capital formation, excluding aspects driven by foreign firms that do not reflect local economic conditions.
These adjustments from the Central Bank of Ireland reflect growing concerns over external pressures shaping the country’s prospects. The downward revision in Modified Domestic Demand highlights softer expectations for household consumption and investment by firms. A drop from 3.1% to 2.7% suggests a cooling momentum. While a figure above 2% still indicates expansion, the trajectory has shifted. For businesses relying on local demand, this signals a need to reassess their outlook on spending patterns and corporate planning over the next year.
The persistence of a 4.0% GDP growth forecast through 2025 and 2026 underscores a division between multinational activity and domestic conditions. Ireland’s economy remains heavily tied to foreign investment, particularly from the United States. However, trade and tax policy adjustments across the Atlantic introduce variables that could reshape corporate decisions. Given Washington’s increased scrutiny of Ireland’s trade practices, some firms may reconsider long-term commitments. If new tariffs or tax code revisions come into effect, business costs could rise, weakening Ireland’s appeal as a hub for foreign operations. Those in affected industries will need to watch for further developments, particularly any legislative moves that could bring abrupt changes.
Export Performance And Risks
Inflationary pressures are another factor demanding attention. The bank’s decision to raise its 2025 Harmonised Index of Consumer Prices (HICP) projection from 1.7% to 2.2% suggests that price growth will be stronger than previously thought. While the figure remains moderate, it marks an upward shift, which could influence household spending, wage negotiations, and interest rate expectations. Price pressures might not be severe enough to trigger aggressive policy responses, but they must be factored into assessments of purchasing power and cost structures.
Meanwhile, Ireland’s export data points to strength in pharmaceuticals, with a 68% year-on-year increase in January. This rise aligns with rising U.S. demand, as companies look to secure supply chains ahead of possible trade restrictions. Pharmaceutical firms operating within Ireland may see frontloaded demand as buyers attempt to mitigate future risks. However, any disruption to regulatory frameworks or supply agreements could alter this trend. If trade conditions tighten, reliance on a single market for export growth could expose weaknesses. This is particularly relevant for those trading internationally, as shifts in policy could change competitive positions overnight.
Modified Domestic Demand, which strips out distortions from multinational firms, remains a key tool for assessing Ireland’s real economic direction. By focusing on personal consumption, government expenditure, and investment in assets that reflect genuine local activity, this indicator provides a clearer sense of underlying conditions. While GDP growth remains steered by foreign-owned enterprises, domestic performance offers insight into trends affecting workers, small businesses, and households. In the context of monetary policy and fiscal planning, close monitoring of this measure will help guide decisions in the months ahead.
