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      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.”

      Daragh McGreal
      Daragh McGreal

      Economist

      KPMG in Ireland

      Key points

      • Global geopolitical risks have remained elevated since President Trump’s inauguration, with most major markets adopting a ‘wait and see’ approach to tariff changes and trade agendas. The consensus amongst forecasters is that any potential negative effects, such as lower growth and higher inflation, will not impact until 2026 and will be offset by underlying economic growth to some extent.
      • Domestically, forecasters are optimistic about Ireland’s ability to navigate the current policy uncertainty. For 2025, we expect Modified Domestic Demand (MDD) growth to be in the range 3%-3.5% and GDP growth to be in the range 4%-4.5%. 
      • The formation of a new government in Ireland signals continued stability to international investors and provides a real opportunity for it to overcome infrastructure delivery challenges. Bottlenecks holding back growth must be addressed through collaboration between the public and private sector, and this would act as an important counterbalance to global headwinds.
      The real effects of US policy changes and resulting trade impacts will not be immediate.
      Daragh McGreal

      Director, Head of Strategic Economics

      KPMG in Ireland

      Upsides and downsides in global growth

      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.

      The impact of the US President for Ireland

      While President Trump’s proposed tariffs could directly affect about a third of all Irish goods exports, some US research shows that such tariffs would have an outsized impact on US consumers. This could, in turn, weaken the political momentum behind the administration’s tariff agenda.

      President Trump’s proposals to reduce corporation tax are gaining traction and the working assumption in Ireland is that this will reduce our own corporation tax take as well as our attractiveness for FDI.

      Daragh McGreal, Economist at KPMG, said “Ireland remains an appealing choice for investors, and multinational businesses already here are unlikely to move back to the US. Many multinationals may see corporation tax changes as a part of a four-year cycle, rather than as a fundamental long-term shift in US tax policy. Already, the new Government in Ireland has been making moves to consolidate its case for continued investment. As the 7th largest investor into the US and as the only English-speaking and common law country in the EU, we have a strong hand to play.”

      Many multinationals may see corporation tax changes as a part of a four-year cycle, rather than as a fundamental long-term shift in US tax policy.
      Daragh McGreal

      Director, Head of Strategic Economics

      KPMG in Ireland

      Domestic demand will enable real growth, but for how long?

      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.

      Recently buoyant labour market may flatline

      In 2024, employment reached a new peak of 2.8 million, with 100,000 jobs added compared to 2023. The year-end unemployment rate was a relatively healthy 4.2%.

      Jobs growth was particularly evident in the ICT, pharmaceuticals, construction, and renewable energy sectors, with a notable rise in labour force participation among women and migrants. Real wages also recovered modestly in 2024, buoyed by easing inflation, which boosted household incomes and supported consumer spending.

      This year, there is a clear risk that employment growth flatlines, or potentially reverses. We are reaching the upper limits of labour force participation for some cohorts and continued jobs growth can only come from additional labour activation or inward migration. Tourism numbers have not returned to their pre-pandemic levels, continuing to dampen hospitality sector expansion.

      Daragh McGreal said “The integration of AI into businesses’ operations has the potential to benefit and disrupt the Irish labour market, depending on its application and rollout: 2025 can be expected to be a turning point either way.”

      Housing supply and falling interest rates will drive up prices

      Ongoing and persistent bottlenecks in the construction sector are likely to contribute further to Ireland’s housing supply issues. While housing commencements doubled in 2024 (60,000) compared to 2023 (30,000), this was largely administrated, enabled by waiving of development levies and water charge rebates.

      In practice, the number of housing completions by year-end 2024 was 6% lower than in 2023 and 25% lower than what then Government had anticipated prior to the General Election.

      Looking forward, there is a backlog of houses from 2024 that will be completed in 2025 and 2026, which should ease some supply issues. However, competition for materials and labour will increase, pushing up construction costs. In parallel, falling interest rates at the Eurozone level will increase the quantum that homeowners can borrow.

      These dual impacts can be expected to continue to drive up house prices this year. First time buyers and movers may need to save more to purchase their homes, reducing overall consumption elsewhere in the wider economy. 

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      Daragh McGreal
      Daragh McGreal

      Economist

      KPMG in Ireland

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