Manufacturing & Supply Chain

The Irish economy is expected to grow into 2025 with the domestic sectors performing particularly well. Modified domestic demand (MDD), an accurate measure of underlying Irish economic performance, is expected to grow by 3.2 per cent in 2024 and increase to 4.1 per cent in 2025, according to Quarterly Economic Commentary, Winter 2024 by the ESRI (Economic and Social Research Institute). The positive out-turn is driven by increases in real incomes, strong labour demand and higher housing investment in 2025.

The ESRI anticipates that GDP, largely driven by activity in foreign-dominated sectors, will experience an overall contraction of -1.1 per cent in 2024. The ESRI expects a rebound in 2025 with a growth rate of 4.5 per cent, driven by higher exports and investment.

However, the outlook for 2025 for the traded sector is highly uncertain because of proposed policy changes by the incoming US administration. Proposed tariffs could lower global trade and have both a direct and indirect effect on Ireland. Changes to taxation policy could adversely affect Irish corporation tax receipts. An assessment of US Foreign Direct Investment in Ireland finds that US multinationals play a much greater role in the Irish economy than in the EU as a whole, suggesting that potential policy changes could have a big impact.

Overall, the rate of inflation continues to decline. With nominal wages also expected to grow, this will lead to higher real wages. The ESRI expects Consumer Price Index (CPI) inflation to rise by 2.1 per cent in 2024 and just 1.0 per cent in 2025.

The Irish labour market remains robust, with the unemployment rate projected to remain close to 4 per cent over the next year. Employment numbers continue to increase and the ESRI expects it to exceed 2.8 million in 2025.

Budget 2025 had a welcome commitment to increase investment in the Irish economy. However, future spending commitments may have to be revised if the effects of changed US trade or taxation policy are large and materialise rapidly.

Commenting on the report, author Kieran McQuinn of the ESRI stated: “While 2024 saw another strong performance for the Irish economy, it would be prudent in 2025 to prepare for some significant challenges both to international trade and the domestic public finances.”

Report author Conor O’Toole of the ESRI stated: “The domestic Irish economy is continuing to perform well with low unemployment, falling inflation and increasing real wages. However, there are considerable downside risks, focused on policy changes by the incoming Trump presidency which could notably impact trade, FDI and the public finances.”