Ireland's Resilience to Tariff and Foreign Direct Investment Turmoil - AIB Economic Perspective
Global Economic Outlook Report from AIB Predicts Potential Slowdown Due to Trade Tariffs
Dublin, Ireland - AIB's latest Economic Outlook Report warns of a potential slowdown in global and Irish growth over the next two years, as a result of increased trade tariffs. This forecast comes after US President Donald Trump's announcement last week of a 50% tariff on EU imports, initially scheduled to take effect on June 1st. However, following a phone call between Trump and EU chief Ursula von der Leyen, the implementation has been delayed until July 9th.
The report, themed "Could Ireland weather a tariff and Foreign Direct Investment (FDI) shock? - A balance sheet perspective," suggests that the Irish economy has developed some resilience to withstand short-term trade and FDI shocks. However, permanent tariffs or long-term changes to the US tax code could pose significant challenges, particularly to the multinational sectors, which account for around 12% of total employment, contribute to 50% of GDP, and generate around 80% of Ireland's exports.
The Irish economy is expected to grow by 2.3% this year, 2% in 2026, and 2.6% in 2027, according to the bank. Households are forecasted to curtail spending growth, while some business sectors, especially export-oriented ones, might postpone planned investments. Despite these potential challenges, consumer spending has remained robust, and both the public and private sectors possess low debt levels and high savings.
The report identifies the US tariffs and future US tax policy as the main downside risks to the Irish economy. Certain exporting indigenous Irish sectors, such as agri-food, are vulnerable to US tariffs, but the major risk lies in Ireland's heavily multinational-dominated sectors. A heightened risk of tariffs on the Irish pharmaceutical sector, which along with technology services, accounts for a significant share of multinational sector output, could have negative spillovers on domestic sector output and employment.
The labor market is forecasted to continue growing, albeit at a slower pace than the 2.7% rise anticipated for 2024. Employment growth is predicted to slow to 2% in 2025, 1.5% in 2026, and 1.8% in 2027, due to a cooling in the overall economic growth.
Though supply chain spillovers from the multinational sector to the domestic economy are substantial, the employment footprint of the sector is relatively small, primarily focusing on urban centers. AIB Chief Economist David McNamara emphasizes that the global economy is undergoing a significant shift due to the US trade policy, and the uncertainty it creates could hamper growth in 2025 and 2026. Despite this, Ireland enters this period of uncertainty in a strong position, with robust economic growth and substantial financial buffers in both the public and private sectors.
The potential slowdown in global growth, predicted by AIB's Economic Outlook Report, may be attributed to increased trade tariffs. The report also highlights that Ireland's heavily multinational-dominated sectors, such as technology services, could face a heightened risk of tariffs, which could have negative spillovers on domestic sector output and employment, indicating a significant impact on the country's lifestyle with the advancement of technology.
