By Austin Hughes, Economist and Contributor at Credit Logic
There can be no doubt that the tariffs announced and/or threatened by US president, Donald Trump, in tandem with the general thrust of his policy stance since taking office materially weaken the outlook for the Irish economy but there is a significant difference in terms of the outlook for activity, employment and incomes between damage and destruction.
Some sense that the Irish economy is not uniquely or immediately at risk of a dramatic deterioration may be gleaned from the latest IMF forecasts published on April 23rd. Although these entail a downgrade to the IMF projection for advanced economies’ GDP growth in 2025 to 1.4% from the 1.8% estimate made last October, the IMF has upgraded its GDP growth forecast for Ireland fractionally to 2.3% from the previous estimate of 2.2%.
The Impact on the Irish Mortgage Market
There is little question that a more uncertain world and the ongoing risk of major shifts in global economic policies will weigh on the Irish economy, and hence on the Irish mortgage market. It certainly threatens a ‘bumpy’ period ahead, but, on balance, it still means the outcome for the mortgage market should be a period of slower growth overall rather than a slump.
The tariffs announced by the US won’t affect all economies equally or at the same pace. The most immediate negative effect will be felt by US consumers and businesses who will face markedly higher prices and/or disruption to the supply of imported goods they consume in the weeks and months ahead. This will weaken activity and boost inflation in the US in the short term.
While Trump’s policies and playbook certainly warn of a changing world order, it remains to be seen whether this new path is set in concrete or in clay. Much depends on how other countries respond and whether US economic pain and/or pressure from financial markets force a policy adjustment.
The Global Economic Reaction
In this context, the weaker trend in equity markets and threatened pressure on bond markets through much of April suggests that while President Trump may be powerful, he is far from omnipotent. Extreme measures may cause extreme and unpleasant reactions for the White House.
However, Tariffs will weigh on Irish economic growth in a variety of ways. Already, elevated uncertainty is weighing on Irish consumer sentiment and may prompt some scaling back of or at least delay in making ‘big-ticket’ purchases. How far this goes depends on whether some very pessimistic commentary is borne out by a near-term deterioration in key indicators such as employment and the public finances.
Business investment can also be expected to soften as the costs of a ‘wait and see approach’ fall materially relative to potential benefits. That said, it is very important to emphasise that the sequence of events through which tariffs translate into weaker domestic conditions is likely to be notably more gradual at the ‘macro’ level in Ireland than may be seen now in the US or previous problem episodes in the Irish economy. (Obviously, at the ’micro’ levels of firms selling into the US market, the problems begin immediately.)
While no statistical model can give a perfect sense of what might happen to the Irish economy, recent work by the ESRI and Dept of Finance gives some sense of how much damage tariffs might do to activity and employment and how quickly that might occur.
Long-Term Outlook for Ireland
The key feature of the results is that most of the damage happens later rather than sooner, and the overall impact of tariffs is to slow rather than completely stop economic growth and gains in employment in the coming years.
Tariffs and trade wars should be seen as a slow puncture rather than a blowout. This is partly because of the way they might work, but also because they are happening at a time when the Irish economy has strong positive momentum. This is driven by a very strong jobs market, substantial household wealth and solid public finances. While tariffs will damage this environment, they won’t entirely derail growth.
For example, numbers at work in the Irish economy will be negatively affected, but shouldn’t lead to lower employment overall. Instead of previous projections that envisaged employment would increase by around 125k over the next three years, ESRI/Dept of Finance model estimates imply that tariffs will limit the increase to about 60k. So, it’s important to emphasise that the relevant economic models don’t suggest that we will see any sharp drop in overall numbers at work in Ireland.
It is also important to note an offset from lower interest rates. In response to the threat posed by tariffs, the ECB has moved quickly to cut interest rates in mid-April, and markets expect further rate reductions as the year progresses.
Final Thoughts on the Irish Mortgage Market
These offsetting elements suggest further but slower growth in Irish mortgage market activity and a slower increase in house prices over time. Unless other policymakers follow President Trump, the Irish market may experience a seriously ‘bumpy’ period ahead, but one entailing slower growth rather than a slump.
