The Central Bank of Ireland has upgraded its growth projections for the domestic economy, yet it has issued a cautionary note regarding potential risks posed by changes in US economic policy. According to the bank’s latest quarterly economic bulletin, Modified Domestic Demand (MDD) is expected to rise by 3.1% in 2024, an increase of 0.7 percentage points from its earlier forecast. The report anticipates similar growth in 2025, followed by a moderation to 2.7% in 2026.
MDD is regarded as a more reliable indicator of indigenous economic activity, particularly given the significant presence of multinational corporations (MNCs) in Ireland. Companies such as Apple Inc. and Pfizer Inc. have contributed substantially to the nation’s economic success, which is marked by near-full employment and one of the few budget surpluses in Europe, largely driven by record corporation tax receipts.
However, the Central Bank has raised concerns about the sustainability of this growth model, particularly in light of potential shifts in US policy under the incoming administration of Donald Trump. The US stands as Ireland’s largest trading partner, and any escalation in trade tensions could adversely affect net exports, thereby impacting the economy. The bank noted that the Irish economy is already operating above its potential, with infrastructure limitations, particularly in housing, health, and utilities, posing significant barriers to further growth.
Ireland is currently grappling with a severe housing crisis, characterised by an acute shortage of supply that is affecting various sectors of the economy. The Central Bank’s Director of Economics and Statistics, Robert Kelly, highlighted that while specific policy directions from the new US administration are yet to be revealed, any increase in tariffs or alterations to tax structures that diminish the profitability of US MNCs in Ireland could lead to critical shifts in investment decisions. This could affect employment levels in these companies and, consequently, the tax revenue generated from their operations in Ireland and abroad.
Concerns about the potential impact of US policy on Ireland’s economic landscape have intensified following remarks from Howard Lutnick, the president-elect’s nominee for the Commerce Department, who previously accused Ireland of running a surplus at the expense of the US. The prospect of the US reducing its corporation tax rates to match those of Ireland poses further risks to the country’s tax revenue, as a considerable portion of the nation’s corporation tax income comes from these multinational firms.
Central Bank Governor Gabriel Makhlouf recently underscored the potential challenges in a press conference, stating, “A protectionist and fragmented world has negative implications for economic activity domestically.” The Central Bank’s cautionary outlook underscores the interconnectedness of global economies and the significant influence that US policies can have on Ireland’s economic health.
As Ireland navigates its recovery and seeks to maintain its growth trajectory, the focus will need to remain on addressing infrastructure challenges and ensuring that the domestic economy is not overly reliant on foreign multinationals. With 2024 poised to be a pivotal year, stakeholders will be watching closely to see how these dynamics unfold.
