2025 Ireland economic outlook: Resilience amid global uncertainty

Ireland’s economy continues to outperform its peers, yet trade uncertainty, weak global demand, and elevated insolvencies pose major risks for Irish businesses into 2026.

Despite a lower-than-expected impact from US tariffs, the global economic outlook remains weak, with growing signs of stagflation now materialising. We expect global GDP growth to continue to decelerate to +2.5% next year (down from a forecast +2.7% in 2025), while global inflation is expected to remain elevated at 3.5% in 2026 (3.9% in 2025), according to Allianz Trade’s latest Economic Outlook.

Major economies are experiencing their lowest growth levels since 2008, including many of Ireland’s key export markets. The US economy is projected to grow by just +1.6% in 2026, among the lowest growth rates since the start of the century. Growth in both the Eurozone and UK is expected to fall to +0.9% in 2026. Germany, another important export market for Ireland, is forecast to achieve just +0.1% growth in 2025 having seen its economy shrink -0.5% in 2024.

Despite the threat of US tariffs, Ireland’s economy has proved more resilient than most of its peers in Europe. The Central Bank of Ireland recently raised its 2025 GDP growth forecast to +10.1%, making Ireland one of the fastest growing advanced economies. This strong performance was mostly fueled by pre-tariff stockpiling in the US during the first half of the year: for the first five months of 2025, goods exports to the US surged by +153%, in particular from pharmaceuticals.

Growth in the Irish economy, however, is expected to fall back next year. The Central Bank  is forecasting GDP growth of 3.8% in 2026, +1.4 pp higher than its previous forecast. While the EU-US trade agreement in August provides some welcome clarity on tariffs, Ireland’s open export-led economy continues to face downside risks from economic and political uncertainty. Ireland’s economy and corporate tax revenues are heavily reliant on the multinational sector, which remains exposed to the vagaries of US protectionist trade policies.
 

Tariffs remain the biggest risk for Ireland’s economy, with the potential to reduce demand and increase costs for Irish goods in the US, the country’s biggest export market. Globally, trade rerouting and tariff deals over the summer have softened the blow of US tariffs in 2025 – the effective tariff rate was 11.2% by August, lower than the theoretical 13% – although that could climb toward 14% by year-end, given the limited room for further diversification and higher tariffs kicking in.

While the impact of tariffs has been milder than expected, the reprieve may prove temporary. Global trade of goods and services is expected to slow to +0.6% in 2026 from +2% in 2025 as the trade war impact is delayed. If global trade volumes stagnate, export-driven economies like Ireland could feel the squeeze on corporate financials. A prolonged trade conflict would likely mean overall trade flows would dry up. That spells trouble for nations whose firms rely heavily on foreign markets for revenue.

Ireland’s pharmaceutical and chemical industries are among the top sectors exposed to US tariffs risk, accounting for 42.1% and 32.0 % of exports, respectively. In September, President Trump announced a 100% tariff on branded pharmaceutical imports into the US, effective from 1 October. However, the EU-US tariff agreement should cap pharma tariffs at 15%, while generic drugs and pharma companies pledging to reduce prices and/or make investments in US manufacturing are exempt ($179 billion has been promised by European pharma firms already).

Beyond pharmaceuticals, tariffs also have the potential to increase cost of exports and reduce demand for Irish food and drink products in the US. Tariffs could also have a significant impact on Ireland’s semiconductor industry as well as consumer devices and online retailers.
 

Tariffs have not yet unleashed the wave of corporate insolvencies many feared, yet global business insolvencies are expected to rise by +6% in 2025. As mitigation strategies wear thin and demand slows, we foresee a catch-up in the next quarters. The US is likely to end this year with a +9% increase in insolvencies, while in Western Europe we expect a +6% year-over-year rise in 2025, the fourth consecutive year of increases for the region (and +3pp higher than previously forecast). While insolvencies in the UK are stabilising, most Western European countries continue to record increases.

We expect Ireland will see a +1% increase in insolvencies this year before falling -3% in 2026. Despite the improvement, insolvency risk at these levels would still be 9% and 5% higher than pre-pandemic levels, respectively. For Western Europe, we forecast a moderate decrease in insolvencies in 2026 (-2%), although most European countries will still record more insolvencies than in 2016-19. However, slower economic growth, persistently high financing costs, increased competition, and sectorial fragilities all could keep insolvencies higher for longer in 2026.

Heightened protectionism is seen as the greatest threat to the global economy, and a significant risk for Ireland. We assign a 45% probability of global trade entering recession due to further US tariff escalation, removal of product exclusions and an end of the US/China truce. Such a scenario would have a severe negative impact on global growth, with downward pressure on global prices and higher interest rates.

Financial market shocks are another source of potential downside risk. Equity market valuations for AI-focussed technology companies appear stretched: the market share of the top five members of the S&P 500 is close to 30%, higher than at any point in the past 50 years. We assign a 20% probability to an AI bubble burst, which could cause a surge of bankruptcies (an additional +4,500 insolvencies in the US, +4,000 in Germany and +1,100 in the UK). We also assign a 20% probability to a large-scale sovereign debt crisis, which would carry severe costs for global growth and inflation, and likely lead to a higher cost of financing for businesses.

In Europe, more than half (53%) of sectors we monitor recorded an increase in insolvencies over the first half of 2025, with services, retail, and construction being the most affected sectors for major insolvencies globally. Smaller firms are most at risk, although large firms are not immune. Our internal monitoring of large company insolvencies indicates persistently high levels globally for the first three quarters of 2025, fueling the risk of domino effects.

Confidence in Ireland’s construction sector is growing with a stronger pipeline in housebuilding. Input cost inflation is slowing but remains at elevated levels, while increasing workloads have resulted in rising employment and labour shortages. Allianz Trade’s latest Sector Atlas assigned the sector as ‘sensitive risk’.  

Retail insolvencies last year increased 64%, accounting for 11% of all insolvencies in Ireland. The sector was assigned a ‘sensitive risk’ rating in Allianz Trade’s latest Sector Atlas, suggesting structural weaknesses and/or an unfavorable outlook. Along with hospitality, the retail sector has the most warehoused debt while profits continued to be squeezed due to inflationary cost pressures.

Despite tariff uncertainties, the outlook for the food and drink sector remains positive with operators upbeat about future opportunities. However, insolvencies in the hospitality sector increased 48% in 2024, accounting for 17% of all insolvencies in Ireland. Food inflation has eased, but costs remain elevated. Allianz Trade’s latest Sector Atlas assigned the Irish agrifood industry as ‘medium risk’.