Bank of Ireland has raised its Irish economic growth estimates, amid surging exports and investment spending.
However, it has applied a major caveat: that US president Donald Trump will abandon his threat to impose 30 per cent tariffs on EU imports to keep the levy on most Irish goods at the rate of 10 per cent.
It also assumes that pharmaceuticals, which made up about 60 per cent of Irish exports to the US last year, would be exempt, contrary to warnings from Mr Trump.
“Clearly the outlook is especially uncertain currently. Our forecasts assume US tariffs on Irish exports remain at 10 per cent, with pharmaceuticals exempt. Any escalation would necessitate a downward revision,” said Conall Mac Coille, chief economist at Bank of Ireland. “We are also concerned by growing evidence that bottlenecks and capacity pressures are not being addressed.”
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Bank of Ireland now sees Irish gross domestic product (GDP) rising by 8.1 per cent, up from 3.5 per cent, previously, driven as companies rushed earlier this year to export to the world’s largest economy in advance of feared tariffs.
GDP jumped 9.7 per cent on the quarter in the first three months of the year, data published last week from the Central Statistics Office (CSO) showed, amid a jump in pharma exports to the US in advance of threatened tariffs, likely further distorting the average growth rate across the euro zone.
Modified domestic demand (MDD), which seeks to strip out the effect of multinationals operating in the Republic, increased 0.8 per cent compared with the previous quarter, the data showed.
Bank of Ireland had nudged its full-year Irish MDD forecast up slightly, to 2.9 per cent from 2.8 per cent. It sees employment growing 2.6 per cent, compared with 1.8 per cent previously.
“The big picture is that the economy has so far weathered the uncertainty posed by President Trump’s tariffs and EU-US trade negotiations,” said Mr Mac Coille.
The EU is considering how to respond to a letter Mr Trump sent to European Commission President Ursula von der Leyen on Friday, stating he plans to raise tariffs on goods coming from the EU to 30 per cent on August 1st. It represented a serious setback to hopes of Brussels and Washington agreeing a quick tariff deal.
EU trade commissioner Maros Sefcovic, who has been leading negotiations for the bloc and headed to Washington on Wednesday for talks, said blanket tariffs at that level would practically “prohibit” the future flow of trade from Europe to the US.
“Trump’s tariffs have only losers,” German finance minister Lars Klingbeil said during a joint press conference with his French counterpart Eric Lombard. He saidthe tariffs threaten the US economy at least as much as the European one.
“Our hand remains extended but we will not go along with everything, possible countermeasures must continue to be prepared.”
