EU sees risks in depth of Ireland’s economic ties to the US

Ireland’s gross domestic product (GDP) is forecast to grow by 3.4pc in 2025 and 2.5pc in 2026 supported by a strong labour market, according to the European Commission Spring 2025 Economic Forecast published today.

The Commission’s estimates are weaker than Department of Finance estimates and warned our deeper ties to the US now pose a notable downward risk for the country.

The EU forecast does not anticipate a recession as a result of the potential US / EU trade war and Donald Trump’s imposition of tariffs.

However, the Commission says the high levels of uncertainty and a deterioration in global trading conditions will detract from growth. “Ireland’s openness and high trade and investment links to the US leaves it vulnerable to further protectionist policies. 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 dis-incentivise investment and activity in Ireland present significant downside risks to Ireland’s economy,” the report said.

That compares to Department of Finance estimates released earlier this week for (GDP) growth of 4.1pc this year and 3.4pc in 2026.

GDP is the global standard measure for economies and used to make easy comparisons between country.

In Ireland the alternative measure, modified domestic demand, is seen by many as a truer reflection of activity within the economy. The EU says that is set to expand by 2.2pc in 2025 and 2.3pc in 2026. That’s roughly in line with the Department of Finance, which has said it expects growth 2.5pc this year and 2.75pc next year.

Ireland is expected to continue producing budget surpluses, even with significant risks to the windfall levels of corporate tax revenues in recent years, but those surpluses are tipped to shrink.

The forecasts were published on Monday by Economy Commissioner Valdis Dombrovskis.

The Commission does not think the recent rebound of food inflation in particular is a sign of wider price pressure in the Irish or wider EU economy,

with lower prices for non-energy industrial goods and decreases in commodity prices are expected to dampen the impact of price rises. Headline inflation is forecast to reach 1.6pc in 2025 and 1.4pc in 2026.

The Commission’s Spring Forecast projects real GDP growth in 2025 at 1.1pc in the EU and 0.9pc in the euro area– broadly the same rates as last year.

The EU economy is expected to grow by 1.5pc in 2026, supported by continued consumption growth and a rebound of investment. Inflation in the euro area is now anticipated to reduce more swiftly than expected back in the autumn, to the ECB’s 2pc target by mid-year and to average 1.7pc in 2026.

That pace of inflation, if it proved correct, would support the case for continued interest rate cuts.