Bank of Ireland has significantly revised its economic forecasts for Ireland in 2025, reflecting solid performance in the latter half of 2024 that outperformed expectations.
The bank now projects GDP growth of 8.1%, a substantial increase from its earlier estimate of 3.5%, driven by a surge in exports, job creation, and resilient consumer and public spending.
Modified domestic demand is expected to grow by 2.9% (up from 2.8%), and employment growth has been upgraded to 2.6% (from 1.8%).
These optimistic revisions, however, come with a critical caveat: they hinge on U.S. tariffs on Irish exports remaining at 10%, with pharmaceuticals exempt. Any escalation in trade barriers could prompt a downward adjustment.
The Irish economy’s strong momentum in 2024, particularly in the second half, underpins these revisions.
According to Conall Mac Coille, Chief Economist at Bank of Ireland:
“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 growth is fueled by a 9.6% rise in exports in Q1 2025, with goods exports soaring by 46%, largely due to firms preemptively increasing shipments to the U.S. ahead of anticipated tariffs.
New pharmaceutical production facilities and investments in intellectual property have also contributed to this export surge.
Services exports, while more subdued, grew by 3.6%.
Consumer spending has proven resilient, rising by 3% in the year to Q1 2025, with Bank of Ireland’s credit-debit card data showing a 6% increase in June compared to the previous year.
Mac Coille noted:
“There is no sign of the fall in Irish consumer confidence to a 2-year low in April affecting actual spending decisions.”
This strength is supported by a 4.5% increase in pay growth, outpacing the 2% CPI inflation rate, alongside tax cuts from Budget 2025.
Household savings have also grown, with deposits rising 6.5% to €165 billion by May 2025, signaling financial confidence despite global uncertainties.
Public expenditure has exceeded expectations, growing by 8% in H1 2025 to €51 billion, far surpassing the 1.7% forecast by the Department of Finance.
This has led Bank of Ireland to project a 7% increase in gross public spending for 2025, supporting a government surplus of 1.2% of GDP and a declining debt-to-GDP ratio of 36%.
However, investment in construction remains a weak spot, with housing completions falling to 30,300 in 2024, though a rebound to 42,500 is expected in 2025.
Non-residential construction contracted by 5% in 2024, marking a fifth consecutive year of decline, highlighting ongoing infrastructure delivery challenges.
The export sector’s performance has been a standout, with business services, IT, pharmaceuticals, and traditional manufacturing growing by 7%, 17%, 36%, and 4%, respectively, in 2024.
This resilience is notable given a projected 3% contraction in euro area industrial production.
Export growth is forecasted at 3.4% in 2025, rising to 5% in 2026, provided global trade conditions remain stable.
However, escalating U.S. trade tensions pose a significant risk.
While Ireland’s direct exposure to U.S. tariffs is limited—goods trade accounts for 9% of exports, with three-quarters in pharmaceuticals—uncertainty could dampen foreign direct investment (FDI).
The bank warns that tariffs exceeding 10% or changes to pharmaceutical exemptions could necessitate downward revisions.
House price inflation is another concern, projected to rise to 5% in 2025, driven by relaxed mortgage lending rules and a supply-demand imbalance.
The average mortgage approval reached €321,000 in November 2024, up 8% year-on-year.
Despite these pressures, the labor market remains tight, with employment growth at 3.3% in Q1 2025 and unemployment at a 24-year low of 4%.
Bank of Ireland’s Q1 2025 earnings reflect this positive economic backdrop, with a 1.16% stock price increase post-announcement and a projected net interest income of €3.25 billion for 2026.
The bank’s 11.71% dividend yield underscores its strong financial position.
While Ireland’s economy is poised for growth, the specter of global trade disruptions looms large.
Bank of Ireland’s cautious optimism highlights the need for vigilance in navigating these uncertainties.