While country seems to have avoided worst of US taxes, investment is likely to take a hit which will slow growth
The hit from US tariffs has been less than feared when Donald Trump unveiled his so-called “Liberation Day” programme back in April, according to AIB’s Economic Outlook Report for November 2025.
The initial wave of uncertainty created by the abrupt change in US tariff policy has begun to dissipate, the report says.
In August the US and European Union agreed a trade deal, including a so-called 15pc baseline tax on many EU imports to the US. Key Irish exports including from the pharma sector escaped the hit while the EU, along with a number of other US trade partners, opted not to reciprocate in kind, easing fears of a trade war.
That is better than what had been expected in the bank’s last forecast
Ireland also escaped what could have been a potential hit from Mr Trump’s “Big Beautiful Tax Bill”, which it had been feared would boost incentives for US multinationals to shift activities from Ireland to the US, AIB chief economist David McNamara said.
However, geopolitical uncertainty remains high and because of that consumer spending and business investment growth in Ireland are still expected to cool.
News in 90 Seconds – 17 November 2025
AIB is forecasting Irish modified domestic demand, a key measure that hones in on growth in the so-called “real economy”, will be 3.2pc this year, slowing to 2.5pc in 2026 and 2.7pc in 2027.
That is better than what had been expected in the bank’s last forecast in May and would place Ireland among the stronger euro area economies next year.
However, the cloud of uncertainty still hanging over global trade is expected to keep a lid on spending by both households and businesses in 2026, according to AIB’s analysis.
With the jobs market still strong, Irish households are expected to save more, while business will delay or cancel investments.
That will slow growth from where it might have been, Mr McNamara warned.
There are signs the Irish economy is hitting so-called ‘capacity constraints’
“For the domestic economy we expect an easing in growth next year, as ongoing uncertainty dampens both consumer spending and business investment growth,” he said.
“While the risks remain tilted to the downside, the Irish economy has shown remarkable resilience to global shocks in recent years, and the economy is set to continue to outperform European peers.”
At the same time there are signs the Irish economy is hitting so-called “capacity constraints”, such as growing wages and pressure on infrastructure that are now putting a cap on growth.
“Prime age” participation in the jobs market in Ireland is now at an all-time high – 85pc of 25 to 54 year olds are working, which means employers face challenges finding staff.
AIB expects the labour market to continue to grow over the next two years but more modestly. Following a 2.7pc increase in 2024, AIB sees employment growth slowing to 2.1pc in 2025, 1.7pc in 2026 and 1.9pc in 2027.
Unemployment is expected to tick up, at the same time thanks to a growing population, passing 5pc next year and increasing to 5.2pc in 2027, AIB says.
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