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Central Bank Lowers Economic Growth Forecast Amid Global Trade Uncertainty

The Central Bank has revised its economic growth forecast downward for this year, citing increased uncertainty stemming from the ongoing trade war between the United States and the European Union. The domestic economy is now expected to grow by 2.7%, a reduction of 0.5 percentage points from its previous projection.

In its latest economic bulletin, the bank also highlighted a slowdown in the housing sector. Fewer homes are expected to be built over the next two years due to a decline in residential construction last year. The bank now forecasts that 35,000 houses and apartments will be completed in 2025, with the number rising to 40,000 in 2026 and 44,000 in 2027. This is significantly below the 70,000 homes per year that the bank previously estimated were needed to address the country’s housing shortfall and accommodate population growth.

Last year, just over 30,000 homes were completed, falling short of the required levels. The bulletin cited several factors constraining housing supply, including low productivity in the construction sector, delays in utility connections, inefficiencies in the planning system, and a shortage of zoned and serviced land in high-demand areas.

Despite the downward revision, the Central Bank maintained that the overall economy remains resilient. However, it warned of significant downside risks due to rising global tensions. “As a small open economy with extensive trade and foreign direct investment linkages with the US, the Irish economy, public finances, and labour market are highly exposed to changes in US economic policy and any broader deterioration in the global trading environment,” the report stated.

A major concern highlighted by the bank is the potential loss of up to €15 billion in corporate tax revenues from multinational companies due to US-imposed tariffs. The bank cautioned that such a scenario could trigger a “fiscal shock,” affecting public finances and leading to adjustments in government taxation and spending policies.

While acknowledging the economic uncertainty, the bank noted that current levels of unpredictability are still lower than those experienced during the Covid-19 pandemic or Brexit. Nonetheless, the institution has raised its inflation forecast for this year from 1.7% to 2.2%, attributing the increase to rising energy costs and persistent inflation in the services sector.

The economic outlook remains cautious as policymakers and businesses navigate a complex global environment. With the potential for further trade disputes and economic volatility, the Central Bank’s revised forecast underscores the challenges ahead for the economy.

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