Domestic economy exhibits strong growth despite tariff noise

Multinationals dominate Irish exports and profoundly distort GDP, the standard yardstick for growth used internationally.

The performance of the domestic economy tends to get lost in the GDP noise. But this week we got big indicators, attesting purely to the performance of the domestic economy.

First, exchequer returns, published on Wednesday, showed the Government collected €2.9 billion in income tax last month, which was 10 per cent up on the equivalent month last year.

This was the biggest monthly jump in a while and reflects strong payroll taxes related to having a record 2.83 million people employed. The Republic’s population was 2.8 million in 1961.

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And then on Thursday, the Central Statistics Office published updated growth numbers for last year, showing the economy in terms of modified domestic demand (MDD), a measure that weeds out the multinational distortions, grew by 4.9 per cent in 2025 above general expectations of close to 4 per cent.

Given the unsettled global environment, this was a surprising outperformance for the Irish economy, possibly only exceeded by Malta last year.

Goodbody chief economist Dermot O’Leary noted: “On a longer-term horizon, MDD was 25 per cent higher in Ireland than it was in 2019, relative to just 6 per cent in the euro area overall.”

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He also noted the biggest single contributor to growth in MDD was (modified) investment, which grew by 23 per cent year on year and 11 per cent in the final quarter and 2025 overall, respectively.

The single biggest contributor to the investment increase was new residential construction (up 19 per cent in 2025).

Minister for Finance Simon Harris welcomed the data, but said the conflict in the Middle East could lead to another jump in prices for consumers.

“I am encouraged that consumer spending grew by a solid 3 per cent last year,” he said. “This reflects rising real incomes and the strength of our labour market, with a record 2.83 million people in employment at the end of 2025.”

There’s always a list of caveats and potential threats hanging over the Irish economy but for now it is performing strongly.

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