Ireland’s “deep economic ties” with the US “pose notable downward risks” for the economy, the European Commission has warned.
In its Spring economic forecasts, the European Union’s (EU) executive arm said it expected the Irish economy to grow by 2.2 per cent (in modified domestic demand terms) this year and by 2.3 per cent in 2026 with “steady employment” and real wage growth driving consumption.
“However, Ireland’s openness and high trade and investment links to the US leaves it vulnerable to further protectionist policies,” it said.
“While the current US tariff exemptions – notably on pharmaceuticals – cover a large majority of Ireland’s goods exports to the US, the introduction of new tariffs, along with broader US policy changes to disincentivise investment and activity in Ireland present significant downside risks to Ireland’s economy,” it said.
The Commission forecasts assume that US tariffs remain at 10 per cent, with higher duties on some products and exemptions on others.
Industry sources have warned that the State could lose up to a quarter of its pharmaceutical manufacturing capacity if US President Donald Trump pushes ahead with plans to cut prices for prescription drugs by urging pharma companies to raise their prices in Europe.
[ Ireland must steel itself for a trade war with the USOpens in new window ]
The European Commission highlighted this as a key risk to Ireland’s fiscal outlook.
“A weaker performance or a downsizing of the multinational-dominated sectors would significantly affect tax revenues,” it said.
“The outlook for corporate income tax revenues is particularly uncertain, given their concentration among a relatively small number of large multinational companies and a large portion estimated to be windfall, ie beyond what is explained by underlying domestic economic activity,” it said.
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The commission forecast the Irish Government would continue to run a healthy budget surplus this year albeit with revenue growth slowing “amid heightened levels of consumer and business uncertainty”.
Even before the impact of tariffs, corporation tax is expected to be €2 billion lower than previously forecast, at €29 billion, due to declining profitability at multinationals, the Department of Finance said earlier this month.
On the wider euro zone economy, the commission cut its headline growth forecast, citing “weakening global trade outlook and higher trade policy uncertainty”.
[ For Ireland, the choice between the US and China is easyOpens in new window ]
It said it expected the 20-state single currency area’s economy to grow at a rate of 0.9 per cent in 2025 – down from a previous forecast of 1.3 per cent.
“The ongoing disinflationary process, which began at the end of 2022, is expected to advance steadily,” it said.
“After easing to 2.4 per cent in 2024, Harmonised Index of Consumer Prices (HICP) inflation in the euro area is projected to reach the European Central Bank’s (ECB) target of 2 per cent already in 2025, falling further in 2026,” it said.
However, it warned risks to the outlook were tilted to the downside. “Further fragmentation of global trade could mitigate gross domestic product (GDP) growth and reignite inflationary pressures,” it said.
“On the upside, further de-escalation of EU-US trade tensions or faster expansion of the EU’s trade with other countries, including through new free trade agreements, could sustain EU growth. Increased defence spending could also contribute positively,” it said.
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