The Economic and Social Research Institute (ESRI) has downgraded its growth forecasts for the Irish economy, citing US trade policy uncertainty which it said was already dampening investment and consumption.
In its latest quarterly bulletin, the think tank also warned that the Government would have to prioritise certain infrastructural projects in its revamped National Development Plan (NDP) because of capacity constraints in a “full-employment” economy.
On the basis of a 10 per cent tariff on EU goods exports to the US with an exemption for pharmaceuticals, the institute forecast the economy here would grow, in modified domestic demand terms, by 2.3 per cent this year, down from 3 per cent previously, and by 2.8 per cent in 2026.
“With both trade in services and in pharmaceuticals currently outside the scope of the Trump announcements, Ireland is insulated to some degree in the short run,” it said.
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“This could change, however, and longer term US policy shifts could threaten the Irish foreign direct investment (FDI) led economic model if both tariff and non-tariff measures act to reshore activity by US firms back to the US,” it said.
EU negotiators had been hoping to strike a deal with Washington to roll back the near-blanket 10 per cent tariffs imposed since US president Donald Trump’s “liberation day” announcement in April.
But officials in Brussels have begun to accept that any agreement may mean conceding to trade tariffs of at least 10 per cent.
In its report, the ESRI also highlighted the potential capacity constraints facing Ireland as it tries to address long-standing infrastructural and housing deficits.
“Even though an ambitious rewrite of the NDP might be affordable in a financial sense, it could be that elements of the NDP will have to be staged in a way that creates sufficient capacity to deliver vital housing supply,” it said.
A previous report by the institute indicated that up to 80,000 additional workers were needed for build projects in the NDP and to hit the Government’s housing targets.
The ESRI’s Alan Barrett said the Government are going to have to look closely at prioritisation across the NDP “and what are going to be the labour demands at any given point in time”.
It may need to consider “is it possible to sequence things in such a way that you don’t have a situation in which one arm of the NDP is competing against an additional arm of the NDP”, he said.
In its report, the ESRI said the domestic economy faced two notable headwinds.
“The public finances are heavily dependent on windfall corporation tax receipts and residential construction is not accelerating sufficiently quickly to meet housing need,” it said.
While total tax revenues are growing, the ESRI noted the dip in corporate tax receipts in May (they were down €1.1 billion on the same month last year) “served as a reminder of the potential vulnerability”.
“History – in particular the economic collapse – provides a stark reminder that a vulnerability in the tax base can become a major problem if something arises to test the vulnerability,” it said.
The ESRI also warned that Government expenditure was increasing faster than planned in Budget 2025 and “has increased considerably relative to the size of the domestic economy in recent years”.
On housing, the institute reduced its forecast for completions in 2025 and 2026 to 33,000 and 37,000 units respectively, “reflecting the first quarter out-turn and the ongoing structural challenges including production costs, supporting infrastructure, financing, and labour shortages”.
Commenting on the report, Mr Barrett said: “The economy continues to perform well and the ongoing increase in the numbers employed in Ireland is very welcome.”
“However, it is difficult not to be unsettled by global uncertainties,” he said.
