US tariff regime expected to slow domestic economic growth

Exchequer returns show a Government surplus of €2.8bn as of the end of April

Ministers Paschal Donohoe and Jack Chambers at the Department of Finance after the publication of the Annual Progress Report 2025 and April’s Fiscal Monitor. Picture: Leah Farrell / RollingNews.ie

Growth in the domestic Irish economy is expected to slow significantly by the end of 2026 should the tariff regime implemented by US president Donald Trump continue at its current rate, a new economic analysis by the Department of Finance has found.

The analysis shows modified domestic demand (MDD) — the preferred measure of the economy that strips out the activity of multinationals and airplane leasing companies — was expected to grow by 2.5% this year, and 2.8% next year, before the tariffs were implemented. 

Now, MDD is expected to grow by 2% this year and by 1% next year.

This analysis is based on the US retaining its 10% baseline tariff on all imports into the country. However, this 10% rate is due to expire on July 31, at which point the EU tariff could go back up to 20%.

The analysis does not account for the tariff rate going higher than 10%, or specific tariffs on pharmaceuticals and semiconductors, or the potential for retaliatory tariffs by the EU on US imports. 

Any unforeseen changes in these areas could also impact domestic economic growth.

Finance minister Paschal Donohoe said this was a “time of immense uncertainty” and it would be very difficult to model all of the different scenarios the country could confront.

“It's also possible in the weeks ahead that further scenarios could develop between the EU, the US, and other main trading partners that could have a further effect on the economic environment within which our country is located,” he said.

The higher the level of trade uncertainty, the worse it is for global growth, the worse it is for global growth, the bigger the impact that has on Ireland.

The Department of Finance said risks to the economy were firmly tilted to the downside, with challenges such as weaker external demand, escalation of protectionism internationally, energy price shocks, and loss of competitiveness, all potentially problems the Government will have to face.

Despite the uncertainty in the economic outlook, Mr Donohoe, and the Department of Finance, is forecasting a general Government surplus of €8.7bn this year and €6.3bn next year.

According to the latest exchequer returns, the Government recorded a surplus of €2.8bn during the first four months of the year, however, if the proceeds from the Apple tax case ruling from September last year are excluded, the country actually recorded a deficit of €500m during this period.

Despite the deficit, it is an improvement on the deficit of €1.2bn recorded during the same period in 2024.

Total tax revenue generated stood at €28.6bn — an increase of €3.8bn year-on-year — with €11.7bn collected in income tax, €7.9bn collected in Vat, and just under €5bn collected in corporation tax.

When once-off revenues from the Apple tax case are excluded, cumulative corporation tax receipts to end-April amounted to €3.2bn, ahead of the same period last year by €500m. 

April is not a key month for corporation tax receipts, with just €100m collected.

Peter Vale, tax partner at Grant Thornton Ireland, said April was generally a “quiet month” for the exchequer, but after a “slightly disappointing March, income tax receipts recovered in April, up 7.5% on the same month last year”.