Latest quarterly economy report from the ESRI think tank
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What is the main topic discussed in this episode?
Breakfast Business with Enterprise Ireland on Newstalk. Although less onerous than feared, the new 15% tariff regime represents a clear deterioration in Ireland's trading environment. Despite that, Irish growth, as measured by modified domestic demand, is set to be a robust 3.8% this year, but slip back to 2.9% next year. They are among the views in the latest quarterly economic report from the ESRI think tank, which... which also has done a deep dive into Ireland's pharmaceutical sector, whose Irish corporation tax receipts could be in jeopardy. Dr. Conor O'Toole from the ESRI is on the line. Good morning, Conor. Good morning, Joe.
What are the implications of the new 15% tariff regime on Ireland's economy?
Now, let's start with growth. Will this year be better in terms of MDD than you thought six months ago?
Yeah, that's our current expectation. I think there's a couple of factors feeding into that. Certainly, it appears Ireland's economy has weathered the uncertainty around the tariff situation relatively well. And again, with Ireland, it's always a tale of two economies, really. We've got the domestic economy and we've got the multinational sector. And if you look domestically, you know, A couple of the indicators are still pointing in the right direction.
What is the projected growth rate for Ireland's Modified Domestic Demand?
We've got strong household spending, strong employment growth, strong tax receipts. So domestic economy is continuing to perform robustly at the present time. But there are certainly some clouds in the outlook.
And you're a little bit worried about food price inflation.
Yeah, so if you look at the inflationary series at present, the headline indicators have come back towards that 2% level, which is really what the ECB called price stability, their long-term target for inflation. So overall, we had that big spike after COVID and then the Ukrainian war in terms of inflation, but that has come back. Within that, though, there is a trend towards higher grocery inflation. We do know that if you have food price increases, they affect lower income households more than other households. So it is problematic distributionally. So, yeah, within the inflationary basket, the overall headline is stabilised. But there is that upward trend in food price inflation.
And our real wages are not rising as quickly as before.
Yes, we still do have rises in real wages in the economy. Certainly, if you look at the labour market, it's operating relatively robustly. It's at capacity. We've seen nominal wages rise for a number of years now. And because inflation is moderated, we are getting that rise in real incomes. And that's one of the reasons why we feel that domestic economies continue to perform robustly, because households continue to have that expenditure power from the rising real wages.
You definitely don't want the budget to be too generous though, do you?
No, I guess our concerns around the public finances are really twofold. Firstly, as I said, the labour market is operating really at capacity. And, you know, when you have an economy that's operating hot like that, you really don't want to inject too much firepower into it. And certainly we feel the current levels of expenditure that are talked about in the current package for Budget 2026 are are too much for the domestic economy at the present time. But also with the public finances, we have to remember that within the headline surpluses that we were projecting, there is that windfall element from the corporation tax receipts. And really, we would like the government to try and close the public finance deficit when you were just away from that windfall element.
Now, the ESRI shone a pretty bright light on the pharma sector in this particular report. What did you find?
Yeah, so our colleague, former colleague John Fitzgerald did a research note that accompanies the commentary, really looking in depth at what is the current state of the pharma sector, what would the potential impact of this US 15% tariff be.
How is the domestic economy performing amidst current challenges?
I guess to summarise all of that research, one, it's a pretty profitable sector, it's a relatively robust sector, so the 15% should be carryable in terms of output and employment.
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Chapters
4 chapters
1
What is the main topic discussed in this episode?
0:01–0:46
2
What are the implications of the new 15% tariff regime on Ireland's economy?
0:46–1:20
3
What is the projected growth rate for Ireland's Modified Domestic Demand?
1:20–4:10
4
How is the domestic economy performing amidst current challenges?
4:10–5:46