KPMG Economic Outlook

The KPMG Economic Outlook for the global and Irish economies shows that, despite clear global geopolitical risks, economic growth will be realised in 2025.

Ireland experienced growth in its domestic economy in 2024 due to record employment of 2.8 million and bumper tax revenues of €108 billion. However, 2025 begins with significant uncertainty, with US threats of tariff, re-shoring manufacturing, and potential changes in direction of global fiscal policy clouding the outlook.

Domestically, Ireland still sees strong levels of demand for infrastructure, goods, and services, and, if anything, the country’s biggest challenge is meeting its own domestic demand.

Daragh McGreal, Economist at KPMG, said “At the start of 2025, the global economy is highly dependent on the political choices of a few decision-makers. Tariffs have become a key concern, and economies are vulnerable to their implementation. European growth is sluggish, and Ireland faces clear headwinds. However, the real effects of US policy changes and resulting trade impacts will not be immediate. Ireland must highlight its two-way investment value to the US and address domestic bottlenecks.”

Global growth will rise slightly in 2025 to 3.2% before policies from the new administration in the US dampen global GDP growth to 3.0% in 2026. Inflation will continue cooling in the first half of this year.

Thereafter, the forecast depends heavily on the extent to which tariffs and other trade policies are introduced by the Trump administration. This will largely determine whether we see a full-blown trade war erupt or not. Geopolitical risk remains elevated.

In the US, inflationary trade and immigration policies are expected to slow the pace of credit easing. Bond yields have already moved up in response to fears of mounting federal debt and higher inflation. Any major shift in tariffs in the US could trigger retaliatory measures.

Global inflation has cooled in response to higher interest rates, slower growth, excess manufacturing supply and a drop in energy prices. Service sector inflation is beginning to moderate as well. Delays in the effects of monetary policy will push the influence of rate cuts into the second half of 2025 and 2026.

We could see a tailwind for big-ticket consumer purchases and business investment. Much is contingent on headwinds due to retaliatory tariffs.

There is broad consensus that after a modest decline in GDP in 2024 (-0.5%) due to technicalities in multinationals’ activities, GDP will return to growth in 2025, which we believe could be in the range 4%-4.5%.

Modified Domestic Demand (MDD), a more representative signal of domestic economic performance, grew more strongly in 2024 at 2.6% and we expect growth of 3%-3.5% in 2025.

According to KPMG’s Daragh McGreal, “Despite the broadly optimistic outlook for Ireland, there may be a point at which domestic consumption cannot sustain continued growth. While inflation has normalised compared to previous years, its cumulative impact on households has been uneven, with many still facing pressures on disposable income.”

Government supports cushioned impacts for many in 2023 and 2024. Recent increases in European wholesale gas prices, and a planned VAT increase on energy bills from 9% to 13% in April are likely to put upward pressure on energy costs for businesses and households.

In addition, many SME industry groups have called out Government-led increases to business costs as a concern. In the coming months, the new Government will be hoping that lingering domestic demand from 2024 will outweigh consumers’ anxiety around global geo-politics.

While recent economic trends may support this, ensuring sustained growth will likely require targeted policy interventions to support consumer confidence.