Bank of Ireland revises economic forecasts upwards
Bank of Ireland has revised upwards its economic forecasts for the year, if US tariffs remain at 10%.
It predicts GDP growth of 8.5%, higher that the 3.5% growth previously forecast.
The bank says modified domestic demand will grow to 2.9% (previously 2.8%) and employment will grow to 2.6% (1.8%) in 2025.
There is one significant caveat; the forecasts assume US tariffs on Irish exports remain at 10%, with pharmaceuticals exempt. Bank of Ireland says any change to current US policy from August 1, or thereafter, would lead to a revision downwards for Irish GDP projections.
It says its revisions reflect surging exports and multinational output, but also Ireland’s rapid pace of job creation, consumer spending and public expenditure.
The bank says investment spending is expected to bounce back in 2025, as a partial rebound in construction activity takes place.
Bank of Ireland Chief Economist, Conall Mac Coille said, “The Irish economy has significantly outperformed expectations in the first half of 2025, prompting us to revise our GDP growth forecast to 8.1%, up from 3.5%.
“This reflects an exceptional surge in multinational output and exports early in 2025, as well as strong momentum in consumer and public spending. Some of this growth reflects firms front-running expecting tariffs, but also new pharmaceutical production facilities coming online.”
Mr Mac Coille said the upwardly revised forecasts also reflect the strong performance of the domestic economy early this year.
“We now expect Modified Domestic Demand to grow 2.9% in 2025. Revisions to CSO data show consumer spending growing at a substantially faster pace (3%) than first thought. Also, public spending in H1 2025 was up 8%, adding to demand. The 3.3% pace of job creation is also ahead of expectations. The big picture is that the economy has so far weathered the uncertainty posed by President Trump’s tariffs and EU-US trade negotiations.”
The chief economist agrees that the outlook is especially uncertain currently. He said any escalation in tariffs above 10% would necessitate a downward revision.
The report says Ireland’s direct exposure to US tariffs is limited. Goods trade with the US accounted for 9% of Irish exports in 2024, of which three-quarters were pharmaceuticals. The report finds, however, that ongoing uncertainty could have a slow-burn negative impact on FDI.
“Our Irish economic forecasts embody only a gradual pick-up in investment spending from current subdued levels,” Mr Mac Coille said. “We are encouraged by the recent American Chamber of Commerce survey – indicating 60% of respondents still expected to expand employment.”
The fall in Irish housing completions to 30,300 in 2024 has been well flagged, but the bank’s report raises the 5% contraction in non-residential construction, down for a 5th consecutive year, as a concern.
It reflects the negative impact of build cost inflation, planning delays and other rigidities on the construction sector, holding back delivery of key infrastructure projects and the National Development Plan.
The CSO estimated consumer spending grew by 3% in the year to Q1 2025. Bank of Ireland says credit-debit card spending in June was up 6% on the year.
“Again, there is no sign of the fall in Irish consumer confidence to a 2-year low in April, affecting actual spending decisions,” Mr Mac Coille said. “Hence, we are now forecasting a stronger pace of consumer spending growth in 2025, at 2.7%. Notably, Irish households continue to accumulate savings rapidly. Household deposits grew by 6.5% in the year to May to €165bn.”
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