Ireland’s Economic Performance in the year to date - Opening Statement by Minister for Finance Mr. Paschal Donohoe to the Joint Committee on Finance, Public Expenditure, Public Services Reform and Digitalisation, and Taoiseach

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Cathaoirleach, thank you for inviting me to attend the Committee today to discuss Ireland’s economic performance this year.

The global trading environment we are now facing looks very different to what we have been accustomed to in recent decades. The ‘new normal’ is increasingly characterised by economic fragmentation, polarisation and self-reliance.

This is very different from the ‘old norm’ of deeper-and-deeper global economic integration, which was so successful in lifting billions out of absolute poverty.

Tariffs – taxes on imports – are a symptom of this new normal. Their introduction is deeply regrettable – they drive up prices of consumer and investment goods, triggering lose-lose outcomes. These trade policy instruments are almost always regressive and, inevitably, run the risk of tit-for-tat retaliatory measures.

As Members of this Committee will be aware, trade policy is a European Union competency and the Tánaiste is working with his counterparts in the Member States and with Commissioner Sefcovic towards agreeing a negotiated solution that will benefit both sides of the Atlantic.

Let me turn now to developments in the Irish economy.

Despite trade, geopolitical and other headwinds, incoming data confirm a strong start to the year. On an annual basis, the economy added 90,000 jobs in the first quarter, bringing the level of employment to over 2.8 million; never before have so many people been at work in our country.

On the prices front, inflation has been at or below 2 per cent for over a year now.

The fiscal accounts remain in the black, thanks to sensible management by Government.

Looking ahead, however, the outlook for this year and next is dominated by uncertainty.

Earlier this month, my department published its spring forecasts, as part of the Annual Progress Report. The key message from our analysis is that uncertainty is prompting households to increase precautionary savings and prompting firms to delay, or even postpone, investment.

This means that – even in the absence of further tariffs – we have revised downwards our projections for growth this year.

The baseline forecasts were produced during March on the assumption that no transatlantic tariffs would be introduced. On this basis, Modified Domestic Demand (MDD) is set to grow by 2½ per cent this year and 2¾ per cent next year.

Given the significant change in the global tariff landscape in recent weeks, my department also calibrated – and published – an alternative scenario that included a 10 per cent tariff on US imports from the EU in most sectors.

In this scenario, MDD is expected to be around 1½ percent lower than in the ‘no tariff’ baseline scenario by the end of 2026.

This scenario is now exceeded in the current tariff outlook.

Of course, the impact on the Irish economy would be far more severe if US tariffs on EU goods were to increase to 50 per cent, as was suggested late last week.

I want to stress, Cathaoirleach, that there is simply no precedent from which to make confident projections of the impact of trade de-coupling. Indeed, given heightened uncertainty at present, I have stressed that the numbers set out in the Annual Progress Report are more akin to scenario analysis than forecasts.

Let me now turn to the government’s response. Against a backdrop of de-coupling, the priority must be to double-down on our ability to attract high value-added investment and jobs to our country.

This means a greater focus on our competitiveness, most notably on those areas which we can influence. I’m talking here about improving our energy and water infrastructure, boosting our transport and housing stock, simplifying our regulatory environment and ensuring labour costs increase in line with productivity.

We will also continue to invest in education, skills and training to boost our human capital.
Finally, we must continue to build up safety in our public finances including through transfers to the Future Ireland Fund and the Infrastructure Climate and Nature Fund.

To conclude, Cathaoirleach, it seems as if we’ve been in ‘perma-crisis’ for about a decade or so. From Brexit to pandemic to energy prices to trade disruption. But the evidence is irrefutable: our economy has been resilient, the labour market strong and the public finances healthy.

That is not to deny for a second that there are problems – the challenges in the housing market being the most notable, though not the only example.

We are now entering a period of economic turbulence and elevated uncertainty but we are doing so from a position of strength.

I am happy to answer any questions the Committee may have.

Thank you.