Linkedin
Facebook
Email
more
Ireland’s GDP growth slowed in Q2 after Q1’s 7.4% surge as tariff front-running and the influx of capital investment from multinationals unwound. The domestic economy also slowed, but held up much better as strong government spending growth bolstered the economy. However, headwinds are likely to grow in the second half of the year, which will weaken growth, as tariffs continue to bite and inflation rises.
Domestic demand lifts Ireland’s economy to growth in Q2
The Irish economy managed to eke out growth in Q2, with GDP rising by 0.2% over the period. Tariff front running started to unwind in Q2, with goods exports falling by -8.5% on Q1.
However, imports fell by even more. This means that net exports were actually 13.3% higher in Q2 than Q1.
The big drag on growth came from investment, which slumped 36.9% q/q after surging in Q1. This was down to a collapse in investment in intangible assets after multinationals got ahead of any sanctions on intellectual property that could’ve been bundled in with new US tariffs in April.
Behind the headline 0.2% expansion, Ireland’s domestic economy was even stronger, growing 0.6% (MDD), despite the uncertainty that clouded Q2 as the EU and US negotiated a new tariff deal. Crucially, consumption grew 1%, suggesting consumers remained confident enough to spend their strong gains in income regardless of the knock to confidence from US tariffs. At the same time, big increases in government spending (+2.5%) also supported growth. However, domestic investment fell -2.1% which offset some of the strength in the domestic economy.
Is Ireland’s economy still outperforming the eurozone?
Ireland’s economy surprised to the upside in Q2, growing despite tariff headwinds and a slowdown in multinational-led investment. Our forecast is that activity will likely normalise in the second half of the year. Yet, growth is still likely to be slower than in recent years. There are two reasons for this.
First, US tariffs will continue to weigh on trade in goods for the foreseeable future, which will slow growth. Ireland is particularly vulnerable to US tariffs because even before tariff front-running caused Irish exports to ramp up, around one third of Irish exports were US-bound. US tariffs therefore have a bigger impact on growth here in Ireland than elsewhere.
Second, while an agreement to cap pharmaceutical tariffs at 15% will go a long way in helping to reduce uncertainty, surveys suggest both business and consumer confidence remain weak. Indeed, in August, the PMI slumped to its weakest level in over a year. Meanwhile, consumer confidence, at -16.3, is well below its long-run average of -6.
Fortunately, even with 0.2% GDP growth, the Irish economy continued to outperform the eurozone, which grew just 0.1% in Q2. Given the drag from tariff-related uncertainty has had a bigger impact on Ireland than elsewhere, we think the underlying economy has been remarkably resilient to external shocks. What’s more, continued strong wage growth and healthy public finances will ensure the domestic economy maintains its momentum.
Ultimately, we still expect the domestic economy to grow by around 2.5% this year as consumers continue to spend and the government looks set to push ahead with another expansionary budget.
