The increasing trend towards trade protectionism globally poses one of the chief threats to Ireland’s economic outlook, KPMG has warned.
In its latest economic commentary, the consultancy warned that armed conflict and trade tensions are “flaring in numerous parts of the world”. These could fuel more isolationist policies “and Ireland is not immune to potential supply chain challenges and protectionist policies”, it warned.
US presidential hopeful Donald Trump has made no secret of the fact that he plans to build a wall of tariffs around the US economy if elected. In its report, KPMG predicted global GDP (gross domestic product) growth would slip from 2.7 per cent last year to 2.5 per cent in 2024 on the back of increasing geopolitical tensions before rising to 2.7 per cent in 2025.
The State’s GDP growth was expected to match the global economy in 2024 with growth of 2.5 per cent before eclipsing it with 3.2 per cent in 2025. The positive growth prospects were being driven by improvements in global trade, easing inflation and a robust labour market, it said, noting modified domestic demand, which better captures domestic economic activity, is anticipated to grow by a modest but steady 2.1 per cent in 2024 and 2.2 per cent in 2025.
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KPMG’s Dublin-based economist Daragh McGreal said while the Republic’s economic prospects for 2024 and beyond appear strong, there are potential challenges from continued geopolitical tensions, infrastructural deficits and competition from peer markets for multinational investment.
“Government finances are in relatively stable health, albeit our corporation tax base remains volatile and significant investment is needed to address existing infrastructural bottlenecks,” he said.
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KPMG’s report said Irish inflation was now firmly on a downward trend. It said inflation in the first quarter averaged 2.2 per cent, primarily due to declining energy prices.
The headline rate is projected to continue its decline, falling from 5.2 per cent in 2023 to 2.1 per cent in 2024 and to 2 per cent in 2025.
However “despite this overall fall, underlying price pressures persist due to sustained wage growth, which continues to drive inflation in services”, said Mr McGreal.
Irish business sentiment has shown signs of improvement, reflecting the broader economic recovery, as businesses become more optimistic about future growth prospects, said KPMG.
However, Mr McGreal noted that “some sectors remain cautious due to ongoing geopolitical uncertainties and potential supply chain disruptions”.
In its latest bulletin, the Central Bank of Ireland projected the Irish economy would grow by 2.1 per cent in modified domestic demand terms this year and by 2.5 per cent next year as inflation eases, real incomes grow and global trade picks up, similar to KPMG’s forecast.
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