The Irish economy grew in the first half of 2025 in the face of tariff threats and geopolitical developments. However heightened uncertainty worldwide has paused investment decisions in many markets. The KPMG Summer Economic Outlook explores the issues.
Globally, economic growth is expected to be at 2.7 % in 2025 and 2.8% in 2026. Growth in Europe is expected to be 0.9% in 2025 rising marginally to 1.1% in 2026.
Ireland performs well
Ireland experienced growth in its domestic economy (measured as MDD) and in its wider economy (measured as GDP) in the first half (H1) of 2025. In the face of President Trump’s tariff proposals in H1, Irish based multinational companies rushed to export goods to the US to get ahead of the proposed tariffs, leading to a temporary increase in economic activity in Ireland.
Domestically, Ireland is continuing to see all-time high levels of demand for infrastructure and housing, goods, and services and one of the country’s biggest challenges is meeting its own domestic demand.
Dr Daragh McGreal, Head Economist at KPMG, said “At the start of 2025, the focus was on what President Trump would mean for the global economy. Many American businesses imported high volumes of goods in the first half of the year. Subsequent postponements to tariffs and constrained production capacity will mean that those stockpiles will have been dwindling and as-yet unshipped goods could face higher tariffs.
Meanwhile, many businesses globally have postponed investment decisions – within their business and externally (e.g. acquisitions) – thereby dampening economic activity. President Trump has flagged 9 July as a landmark date for finally implementing many of his proposals.
The prevailing view is that a base level tariff of 10 percent will be the most widely applied to EU exports to the US. However, despite all of this, the global, European, and Irish economies will still see growth in this year and the world has weathered risks better than many people had anticipated.”
Future prospects
In the first half of 2025, Ireland’s economy continued to grow, enabled both by the export activity of US multinationals and by strong levels of demand domestically. Over the course of 2025, KPMG anticipates that GDP growth will be 3.3% or greater, excluding the one-off front-loading of exports in Q1.
Growth may moderate to between 1.5% and 2.0% in 2026 as tariffs impact exports. Modified Domestic Demand (MDD) growth could be 2.5% or greater this year and will be similar in 2026, with this growth driven by domestic consumption and infrastructure spend.
Domestically, the labour market is continuing to grow (+2.1% in April 2025 v April 2024), the economy is at close to full employment (4.0% in May), inflation has abated (1.7% in May), and interest rates have fallen (cut to 2.0% in early June). These are all positive indicators about the current health of the economy, and they are enablers for growth this year.
Dr Daragh McGreal, Head Economist at KPMG, commented: “While headline GDP has always been questioned in an Irish context, other economic indicators are widely accepted as measures of Ireland’s economic performance. In 2025, these indicators point to a domestic economy that is holding up well despite ambiguity around the prospects for global trade.”
Ireland has difficulties managing prosperity
However, despite the clear multi-year upbeat growth story and the resilience shown in 2025, there are two major inter-related risks for Ireland. Firstly, demand for infrastructure, services, and employees in Ireland has never been higher.
Secondly, the country’s ability to meet demand has never been more stretched. Even part-solving the housing issue is complex and requires several policy levers to work in tandem to have a chance of success.
Dr Daragh McGreal says: “For several years, industry and government reports have been highlighting infrastructure and service bottlenecks across the country: in utilities, transport, healthcare, and housing, amongst others. As each year has passed, demand has grown faster than the economy’s ability to release supply.
In all cases historically, these dynamics have led to lower standards of living. A key challenge is that growing availability of jobs is happening in parallel to quality of life issues for many people, for example in housing, commuting and accessing childcare.
The housing challenge hinders growth
Housing demand is a function of population growth, demographics, household composition, and the labour market. The scale of the housing challenge in Ireland can be daunting. In 2024, 30,000 new homes were completed, despite there being a need for between 52,000 (CBI, Q3 2024) and 90,000 (Davy, February 2025) new homes annually.
In 2025, the situation has not improved: in Q1, 6,000 new homes were completed, up 2% on the same period in 2024 (CSO); in Q1, average rents grew by 3.4% (daft.ie); in April, sales prices were 7.5% higher than one year earlier (CSO); at the end of Q2, asking prices were 12% higher than a year earlier (daft.ie). The ESRI recently forecast that there will be 33,000 housing completions in 2025, a downward revision on its previous forecasts.
Dr Daragh McGreal comments: “Everyone in Ireland agrees that there is a housing challenge in both the rental and sales markets. There are some differing opinions about how to solve this issue: raw supply growth only, demand management, or tax measures.
In general, however, the statistics suggest that the pace at which things are being addressed is too slow. Elevated rental and sales prices are a drag on overall economic growth, as non-homeowners must grow savings at a rate ahead of rental/sales inflation, meaning less consumer spending in the wider economy.”
Global growth slows and Europe’s performance is mixed
KPMG International is forecasting global GDP growth to slow to rates not seen since the global financial crisis of 2008/9. The latest KPMG Global Economic Outlook predicts that GDP growth internationally will slow from 3.2% in 2024 to 2.7% in 2025 before regaining some ground to 2.8% in 2026.
In Europe, the growth outlook is modest in the short term, as uncertainty weighs on business investment and consumer confidence. In the UK, where low growth rates have been a problem for several years, GDP growth is expected to be 1.2% in 2025 and 1.1% in 2026. In the Eurozone, GDP is expected to increase by just 0.9% in 2025 and 1.1% in 2026.
The picture is mixed however, with subdued overall growth masking divergent performances across the continent. Southern and Eastern European economies such as Spain and Poland are performing strongly, thanks to robust domestic demand, targeted investment, and solid labour market performance.
By contrast countries in the north and west, especially Germany and France, continue to face structural and fiscal constraints that are limiting growth.
Evolving geopolitics is driving global uncertainty
The world is going through a ‘Critical Recession’: a transitional phase moving from a US-dominated era of globalisation toward a more multipolar world. This shift sees emerging powers, including India, Brazil, Mexico and Türkiye, and economies in Southeast Asia, asserting their influence, leading to a more contested geopolitical environment.
Dr Daragh McGreal says: “We now face potentially more global conflict than at any time since 1946. This historic surge in turmoil adversely affects supply chains and operations, particularly near critical trade nodes such as the Straits of Hormuz, the Suez Canal, the South China Sea, and the Panama Canal.
These areas, essential for global trade, are increasingly vulnerable to disruptions owing to regional conflicts and overlapping sovereignty claims. The fragmentation of global trade, increased conflict and ongoing uncertainty over tariffs in the US is forcing business leaders to take a ‘pause and consider’ approach about what to do next.”
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Understanding the nuances of the global economy is key to your strategic advantage. Reach out to Daragh McGreal of our Strategy team to gain personalised insights that drive informed decisions and sustainable growth. We look forward to hearing from you.
