Volatility in the multinational sector to prompt contraction in Ireland's GDP this year

Next week, Finance Minister Jack Chambers will present his first budget which is expected to include a package of €8.3bn which will be split between €6.9bn of public spending and €1.4bn on tax cuts and changes.

Ongoing volatility across multinational enterprises (MNE) will see Ireland’s gross domestic product (GDP) shrink slightly this year, but in spite of this the overall economy is expected to continue to perform well, a new analysis by EY has found.

EY is forecasting modified domestic demand (MDD) — a measure of economic growth that does not include the activities of multinational corporations — to grow by 2.3% this year and by 3.2% next year. 

GDP, which is heavily influenced by the numerous MNEs with operations here, is expected to decline by 0.3% before rebounding throughout next year. EY Ireland chief economist Dr Loretta O’Sullivan said while GDP is showing some weakness “a host of other metrics indicate that the economy is doing well”.

“MDD was up in the first half of the year, inflation is back at rates consistent with price stability, the unemployment rate is low, and the tax take is high. There are headwinds of course, some external and some home-grown, but the growth outlook is favourable in the main,” Dr O’Sullivan said.

Job and wage gains are expected to continue over the forecast horizon, supporting consumer spending, with an anticipated ‘Budget boost’ in the offing for households next week.

EY said that the reduction in borrowing costs, following the rate cut by the ECB, will lead to more favourable financing conditions for businesses.

“Three of the main central banks are now in loosening mode, which is good news for households and businesses,” Dr O’Sullivan said.

Budget 2025

Next week, Finance Minister Jack Chambers will present his first budget which is expected to include a package of €8.3bn which will be split between €6.9bn of public spending and €1.4bn on tax cuts and changes.

EY said Ireland’s strong public coffers means there is scope to provide additional support to households and firms, improve public services and further invest in infrastructure.

“Competition among jurisdictions has intensified, and with industrial policy re-emerging the world over, policy makers here will need to evaluate how Ireland can most effectively compete in terms of its grant, incentives and tax credit regime,” Dr O’Sullivan said.

Recent figures show that there are 2.75 million people employed in Ireland. EY’s autumn forecast has revised up employment, with growth now projected to reach 2.2% this year and 1.8% in 2025.

It added that job vacancies have eased indicating some softness in hiring into the future, however, the unemployment rate is projected to remain low by historical standards.