Making “confident predictions” about the impact on the Irish economy of a breakdown in trade relations between the US and Europe, is without precedent, Minister for Finance, Paschal Donohoe said on Wednesday, and forecasting short-term scenarios has never been more difficult.
The Department of Finance said earlier this month that the Irish economy will experience a significant growth shock, with up to 25,000 jobs impacted, if the European Union fails to secure a deal with the US to limit the impact of tariffs originally announced in April.
Addressing the Oireachtas Joint Committee on Finance and Public Expenditure on Wednesday, Mr Donohoe said the scenarios envisaged by his department in the report have, on paper, been exceeded after US president Donald Trump threatened even higher tariffs of 50 per cent on EU imports last week.
The White House subsequently paused any further move on tariffs until July 9th to fast-track trade negotiations with the European Commission.
“I want to stress here that there’s simply no precedent from which to make confident projections of the impact of trade decoupling, and I have stressed that the numbers set out in the annual progress report are as much scenario analysis as firm forecasts at this point,” Mr Donohoe said.
In response to questions, he said: “I have never seen such a short-term forecasting difficulty as we have at the moment, and it is a real challenge for us to be able to give very accurate forecasts regarding what’s going to happen over a one or two-year basis.”
Last week, Central Bank deputy governor Vasileios Madouros warned that the Government must “anchor” its spending to strengthen Ireland’s fiscal position in preparation for what could be a permanent hit to economic output stemming from shifting US trade policies.
Unlike the shock of the Covid-19 pandemic, from which the economy recovered relatively quickly, the economist said that any permanent increase in tariffs would “likely lead to a permanently lower level of output” in the Republic’s economy.
Mr Donohoe said that while it is difficult for his officials to make short-term economic predictions, the Republic’s economy had previously recovered relatively quickly from shocks, including the global financial crisis and the pandemic.
“We’re now entering a period of economic turbulence and higher uncertainty, but we are, from an overall economic point of view, entering it from a position of strength,” he said.
A World Economic Forum survey of economists published on Wednesday found that a majority believe ongoing shifts in US trade policy will have a “lasting impact” on the global economy.
The snapshot of opinion recorded in early April just after US President Donald Trump’s Liberation Day tariff announcement, found most economists (77 per cent) were anticipating “weak or very weak growth” through 2025 in the US, alongside high inflation and a weakening dollar.
“By contrast, they were cautiously optimistic about Europe’s prospects for the first time in years, mainly because of expectations of fiscal expansion, notably in Germany,” the report noted.
x ref to WEF piece on fifth business page
