In an annual report it is due to file to the European Commission, the Department of Finance downgrades its expectations for Modified Domestic Demand (MDD), regarded as the most accurate measure of economic performance in Ireland.
Paschal Donohoe, the Minister for Finance, said: “My Department expects MDD to expand by 2.5pc this year, a downward revision of almost half a percentage point from the autumn forecasts. This reflects heightened levels of uncertainty.
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“Even in the absence of any further changes in tariffs, there is evidence that firms and households are adopting a ‘wait-and-see’ approach. In other words, they are holding off on big-ticket purchases; this is also a feature in other economies.”
These forecasts were produced at the end of March on the assumption that transatlantic tariffs would not be introduced.
“We have included an alternative scenario which assesses the potential impacts for the Irish economy under the current tariff landscape,” Mr Donohoe said. “In this alternative scenario, the level of domestic economic activity is around 1.5 percentage points below the no-tariff baseline by the end of 2026.”
The current position is that Irish exporters pay a 10pc tariff on sales to America, with exemptions for some sectors, including pharma. If that remains, the projection is that MDD will grow by 2pc this year and by 1.75pc next year.
In relation to the labour market, employment would be forecast to increase by 1.75pc this year and by about 1pc next year. This would be equivalent to around 25,000 fewer jobs compared to what was expected.
New Exchequer returns show a surplus of €2.8bn to the end of April. Tax receipts in the first quarter were €23.6bn, 17.5pc ahead of the same period last year. Some €1.7bn of the tax yield came from the Apple settlement ordered by the European Court of Justice.
Olivia Lynch, Head of Tax Markets at KPMG, said: “Income tax was the top performer in April with receipts of €3.5bn, up 7.5pc compared to April 2024. This growth is reflective of a buoyant Irish labour market operating at full employment.”
Reflecting the continued growth in consumer spending, VAT receipts were up €0.5bn, or 6.8pc, year-on-year in the first quarter.
Government spending was €33.1bn, in line with the amount profiled by departments, but an increase of almost 10pc on this time last year.
In the Annual Progress Report, the Department of Finance says that high-frequency data, such as credit card receipts, suggest there was “strong momentum” in consumer spending in the first quarter of this year.
“Household incomes are benefitting from several tailwinds: continued employment growth, gains in real (i.e. inflation-adjusted) wages, income tax reductions that took effect in January and transfer payments, including one-off transfers, to households arising from Budget 2025,” the report says.
However, an increase in precautionary savings cannot be ruled out given the geopolitical turbulence. “Even in the absence of any further tariffs, exceptionally high levels of uncertainty are likely to prompt households and firms to delay, or even postpone, discretionary or large spending decisions,” the report says.
Price inflation continued to moderate in the second half of last year, according to the Department of Finance. MDD increased by 2.7pc, 0.2pc ahead of the projection made last autumn.
GNI*, a metric that strips out the distortionary effects of depreciation on Intellectual Property and leased aircraft, is expected to have grown by about 4pc in 2024.
Economic growth was relatively labour intensive last year, with over 70,000 jobs added, up 2.7pc. Employment is set to expand again this year, but at a slower rate. Inflation will average 2.1pc this year, and next.
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