Central Bank of Ireland
- 2025 modified domestic demand forecast cut to 2.7% from 3.1%
- GDP growth forecast lowered to 4.0% in 2025 and 2026
- Inflation outlook revised higher, with HICP now seen at 2.2% in 2025
- Risks strongly tilted to the downside due to U.S. trade and tax policy threats
The Central Bank of Ireland has downgraded its economic growth forecasts, citing unprecedented global policy uncertainty, particularly from potential U.S. trade and tax changes.
The 2025 modified domestic demand (MDD) forecast—the bank’s preferred economic measure—was revised down to 2.7% from 3.1%. GDP growth expectations were also trimmed to 4.0% in both 2025 and 2026, reflecting softer consumption, investment, and export growth.
Concerns over U.S. policy shifts have intensified following criticism from Trump over Ireland’s trade surplus and tax policies. Proposed tariffs on pharmaceutical imports and broader corporate tax changes could significantly impact U.S. multinationals operating in Ireland, which are crucial to the country’s employment and tax revenues.
The bank also raised its inflation projections, with headline HICP inflation for 2025 revised up to 2.2% from 1.7%, reflecting lingering price pressures.
Despite these risks, Ireland’s pharmaceutical exports surged by 68% year-on-year in January, fueled by strong U.S. demand, potentially driven by stockpiling ahead of anticipated trade restrictions. The central bank acknowledged this export momentum could provide some upside, barring the introduction of new tariffs.
EUR update:
What is Ireland’s Modified Domestic Demand (MDD) Indicator?
- Modified Domestic Demand (MDD) is the Central Bank of Ireland’s preferred measure of domestic economic activity. It provides a more accurate picture of the Irish economy by adjusting for distortions caused by multinational corporations operating in the country.
Why is MDD Used Instead of GDP?
- Ireland’s GDP is heavily influenced by foreign multinational firms, especially in technology and pharmaceuticals. These companies engage in activities like intellectual property transfers and aircraft leasing, which inflate GDP figures but do not reflect real economic conditions for Irish households and domestic businesses.
To counter this distortion, MDD focuses on domestic demand, measuring:
- Personal consumption (household spending)
- Government spending
- Modified gross domestic fixed capital formation (GDFCF) – an adjusted measure of investment that excludes intellectual property and aircraft leasing, which are often driven by multinationals rather than local demand
