EU forecasts Irish GDP to rebound to 4% next year
The Government Eu Lead To Steady Growth, Would Measures Consumption More Said Mission Growth, Ine And Wage Which Employment Increase Continued Disposable Would Households' Real Real Support
The EU Commission has forecast Ireland’s gross domestic product (GDP) to decline by 0.5% during this year, largely due to a contraction in the multinational sector, before rebounding in 2025 and growing by 4%.
According to the commission’s autumn economic forecast, preliminary estimates for the July to September period show GDP is expected to grow by 2%. However, this will not be enough to stop the country recording a contraction in GDP this year, following a decline in multinational activity during the first half of the year.
GDP is not the most reliable measure of the Irish economy as it can be skewed by the presence of the many multinational companies with operations here. For that reason, the Government prefers to use measures such as modified gross domestic income or modified domestic demand (MDD).
“In contrast, MDD, which better reflects the underlying domestic economic activity in Ireland, increased by 1.9% year-on-year during the same period, supported by a strong labour market,” the commission said.
MDD is set to expand by 2.7% in 2024, 2.8% in 2025 and 3% in 2026.
The EU Commission said the continued steady employment growth, real wage growth, and Government support measures would increase households' real disposable income which would lead to more consumption.
Irish exports, which are heavily weighted towards the multinational sector, particularly the pharmaceutical sector, rebounded in the first half of this year following a difficult 2023.
“Looking ahead, exports are expected to contribute positively to economic growth, supported by a favourable external environment and continued growth in key sectors such as pharmaceuticals and computer services,” the commission said.
The labour market is expected to remain tight over the coming years, with inflation expected to remain low.
The commission said the overall European economy is forecast to grow by just 0.9% this year following a “prolonged period of stagnation”.
“Economic activity is forecast to accelerate to 1.5% in the EU and to 1.3% in the euro area in 2025, and to 1.8% in the EU and 1.6% in the euro area in 2026,” the commission said.
The German economy, the largest in the EU, is expected to contract marginally this year by 0.1%, before recovering and growing slightly in 2025 by 0.7%.
The French economy, the second largest in the EU, is in a better situation and is expected to grow by 1.1% this year and 0.8% next year.
While some of these indicators for the years ahead are somewhat positive, the policies of the incoming Donald Trump administration in the US, particularly around tariffs, could significantly impact both economies.
EU commissioner for economy Paolo Gentiloni said a “possible protectionist turn in the US trade policy would be extremely harmful for both economies”.