By Paul Hannon
Ireland's economy faces heightened uncertainty as a result of changing U.S. policy that could see its economy grow much more slowly than previously expected and government tax revenue fall sharply, the country's central bank said.
The operations of U.S. businesses account for a big share of Irish economic output, employment and tax revenue. While they have used Ireland as a low-tax base from which to export to the rest of Europe, many also sell a big share of their production to the U.S.
In its quarterly outlook, the central bank said the rise in U.S. tariffs announced in early April would have a significant impact on economic growth over coming years, although it likely wouldn't push Ireland into a lengthy contraction.
"Ireland is experiencing, and can be expected to further experience, the fallout from changing geo-economic relationships and priorities," said Robert Kelly, director of economics at the Central Bank of Ireland.
Irish exports to the U.S. surged in the first quarter as businesses there built stockpiles in anticipation of a rise in tariffs. As a result, the Irish economy grew by 9.7% in the three months through March, far outpacing other rich countries.
Largely as a result of that jump in output, the central bank raised its forecast for growth in gross domestic product during 2025 to 9.7% from 4%. But it said it expected a decline in exports in the three months through September that would be "symmetrical" to the rise in the first three months of the year as U.S. businesses drew on their stockpiles.
So large was the pickup in Irish growth during the first quarter that it lifted the eurozone as a whole, helping it to grow at its fastest pace in almost three years. A decline in GDP in one or two of the coming quarters would dampen eurozone growth.
The central bank said the jump in growth during the first quarter was also driven by a rise in demand for new weight-loss and diabetes drugs that is likely to be sustained over coming years and wasn't related to anticipated tariff increases.
Assuming that new U.S. tariffs on imports of most goods from the European Union rise to 20% from July, the central bank forecast a sharp slowdown in growth to 2.7% in 2026, down from its previous forecast of 4%.
The U.S. is also considering an increase in tariffs on imports of pharmaceuticals, which have so far been exempt, and if they were to be applied, the impact on the Irish economy would be greater. The central bank said that GDP would be 4.2% lower in 2027 than in its baseline forecast.
Over recent years the Irish government has benefited from a surge in tax revenue from U.S. businesses that have moved intellectual property to the country, including big pharmaceutical firms. That has enabled the government to increase spending while running a budget surplus.
That could change if the U.S. were to combine tariff hikes with changes in its tax policies to make it less attractive for American businesses to locate in Ireland, the central bank warned. If tax revenue from U.S. businesses were to return to more normal levels, and foreign investment in Ireland fell by 20%, the government could face a budget deficit from 2030 of 4% of gross national income and a sharp rise in its debts.
While changes in U.S. policy seem set to have a greater impact on Ireland than many other countries, the central bank said there are measures the government could take to cushion the blow, including increases in investment spending to upgrade the country's infrastructure, and most urgently providing new housing, which is in chronically short supply.
Write to Paul Hannon at paul.hannon@wsj.com
(END) Dow Jones Newswires
06-18-25 1915ET
