Quarterly Economic Digest Q2 2025

Irish economic output has continued to grow, with unemployment low, inflation stable and tax receipts remaining healthy. Nonetheless, concerns are growing amid uncertainty around tariffs on trade and the potential escalation of the ongoing trade war. As a small, open, trade-oriented economy, which is home to many US companies and part of the EU single market, Ireland is vulnerable to shocks to global trade patterns.

While domestic demand remains strong, driven by resilient household consumption, consumer sentiment is falling

General economic uncertainty is a downside risk to domestic demand. Consumer sentiment, which influences demand, appears to have fallen sharply in March, with the index dropping from 74.8 to 67.5 — the largest fall in sentiment in over two years. This fall in sentiment may lead to lower levels of consumption and discretionary spending in the future. Something to watch for in future forecasts.

Inflation projections for Ireland’s main trading partners show continued long-run moderation towards the target rate of 2%

Inflation is projected to continue to moderate across the euro area, the US and the UK over the forecast horizon. Our most recent projections suggest that inflation will be close to 2.5% across the three economies in 2025 and will fall close to 2% by 2027. However, the impact of recent trade policy announcements by the US and the responses of other major economies remains to be seen. Increased barriers to trade will have an inflationary impact, but this may also be partially offset by a fall-off in demand for goods and services.

Ireland’s unemployment rate remains low at 4.1%, while the construction sector struggles to resource up

Ireland’s unemployment rate was 4.1% in April, down from 4.4% in April 2024. Overall construction sector employment has increased by 9% over the past year, standing at 176,000 in Q4 2024. Over the same period, the number of construction workers allocated to homebuilding increased by 19%. While the overall number of construction workers has been increasing, there is also reallocation between homebuilding and other construction types. The data for Q4 2024 shows that the number of people engaged in homebuilding fell by 8,500 when compared to the previous quarter, while the number of people working in other construction areas increased by a similar amount. Were this to become a trend it would significantly inhibit the sector’s ability to meet national housing delivery targets.

Corporation tax now represents over a third of all tax revenues

Corporation tax, which historically represented an average of 14% of total tax receipts, has grown in importance in recent years and now stands at 36% of all tax revenues. Much of this tax income is related to the international activities of a small number of multinational firms based in Ireland and is also concentrated by sector. There is concern that major changes to global trade patterns, resulting from an escalating trade war, would reduce the profits of these firms and ultimately reduce the corporation taxes that they pay. The Central Bank recently noted that a loss of market share or a prolonged downturn of one or more individual firms poses a risk to trade growth with negative consequences for tax revenues.