When the economic and political history books are being updated, the period we are living through now will warrant a long chapter. It is always tempting to conclude that we are living through a period of unprecedented uncertainty, and that the economic and business outlook has rarely looked more risky and non-transparent. However, as we progress through the second quarter of 2025 it is certainly possible to make this assertion without any fear of contradiction, or accusation of hyperbole.
Since Donald Trump became President in January, the global economic, financial and political system has been thrown into utter turmoil. On 2 April (‘Liberation Day’), President Trump announced a series of widespread tariffs. He announced a baseline tariff of 10 per cent on imports from a wide range of countries, but in addition he announced ‘reciprocal’ tariffs of 20 per cent on all imports from the EU; 10 per cent from the UK; 34 per cent on China; 24 per cent on Japan; and much more besides.
“There is no certainty about what is going to happen and what the impact will be, but the risks for the Irish economy and Irish business are very real.”
The financial markets reacted very badly to these reciprocal tariff announcements, which had no economic underpinning whatsoever. Equity markets fell sharply, the dollar weakened significantly, and bond yields increased sharply. Basically, the financial markets lost confidence in US assets based on a correct conclusion that the proposed tariffs would seriously damage the US and global economies, would fuel higher import prices and inflation, and would cause significant dislocation to the global economic, financial and geo-political order.
The meltdown in bond markets was the most serious issue and this prompted President Trump to announce on 9 April that the reciprocal tariffs would be deferred for 90 days. He also announced tariffs of 125 per cent on Chinese imports, and the Chinese subsequently retaliated with tariffs of 84 per cent.
It is not clear whether President Trump really wants to introduce widespread tariffs across the world, or if he is using them as a bargaining ploy. It is most probably a combination of both. Given his stated aims, the logic behind his actions on tariffs make little sense. Tariffs will damage global growth, drive consumer prices higher, will not bring many manufacturing jobs back to the US, and will just fuel global geo-political tensions.
Globalisation and free trade have driven the global economic model since the second world war, with the formation of the GATT (General Agreement on Tariffs and Trade) in 1947; its replacement by the WTO in 1995; and the formation of what we now call the EU in 1958. These initiatives were intended to promote the freedom of movement of goods and services and create greater economic and political cohesion. All of this is now under significant threat.
Recession in the US is now being mentioned frequently in the markets, and many economic activity indicators are softening. This is a remarkable turnaround in an economy that was still growing strongly at the end of 2024. Tariffs will damage US growth, drive inflation higher, and limit the extent to which the Federal Reserve will be able to cut interest rates. Tariffs of course will have a similar effect on the rest of the world economy.
The outlook for the world economy is now deeply uncertain and risky. The biggest issue is policy uncertainty as nobody can state with any confidence what President Trump might do next. Uncertainty is the best friend of recession.
On the interest rate front, the uncertain global economic outlook should push most central banks to cut rates further. The ECB cut rates six times by a total of 1.5 per cent between June 2024 and March 2025. Based on the outlook for the Euro Zone economy, further cuts of up to 1 per cent seem justified over the coming year.
Despite all the uncertainty, the Irish economy is still performing quite strongly. Tax revenues continued to grow strongly during the first quarter; the unemployment rate stood at 4 per cent of the labour force in March; the inflation rate stood at 2 per cent in March; and the export performance is still strong. However, it would be naïve to believe that President Trump’s policies do not pose an existential threat, particularly given the repeated references to Ireland and the pharmaceutical sector. The facts are quite stark:
Table 1 shows the category breakdown on Ireland’s merchandise trade with the US in 2024. While the focus of attention has been on the chemical and pharmaceutical sector, the US is a very important market for the food and beverage sector.
Table 1: Ireland’s Merchandise Trade Relationship with US (2024)
| CATEGORY | EXPORTS | IMPORTS | ||
| €M | per cent | € m | per cent | |
| Food and Live Animals | 958 | 1.3 per cent | 371 | 1.6 per cent |
| Beverage and Tobacco | 904 | 1.2 per cent | 173 | 0.8 per cent |
| Mineral Fuels and Lubricants | 0 | 0.0 per cent | 1,276 | 5.7 per cent |
| Chemicals and Pharma | 58,328 | 80.3 per cent | 6,053 | 26.9 per cent |
| Machinery and Transport | 4,380 | 6.0 per cent | 11,269 | 50.1 per cent |
| Miscellaneous Manufactured | 7,742 | 10.7 per cent | 2,559 | 11.4 per cent |
| Other | 316 | 0.5 per cent | 793 | 3.5 per cent |
| Total | 72,628 | 100.0 per cent | 22,494 | 100.0 per cent |
Source: CSO
The Irish election in December delivered little change, but the early months of the new Government do not inspire confidence. The legislative agenda has been undermined by the ‘speaking time’ issue, and too little attention is being paid to the greatest threat to the Irish economy since the global financial crisis. Strategic planning is vital for a business, but it is even more vital for a country. Future tax revenues and employment are under threat, but Government needs to place a very aggressive focus on addressing the housing issue; water infrastructure; energy supply, and particularly renewable energy; public services such as health and education; the fostering of a vibrant indigenous economy; and the cost environment for business.
Uncertainty is the word of the moment. There is no certainty about what is going to happen and what the impact will be, but the risks for the Irish economy and Irish business are very real.
In 2024 the value of sales of pharmaceutical, medical and cosmetic items increased by just 0.5 per cent, and the volume of sales declined by 1.8 per cent. In the first two months of 2025 the value of sales was 2.2 per cent higher than the same period a year earlier, and the volume of sales increased by 1 per cent. Notwithstanding the stronger performance so far in 2025, the Irish consumer is likely to be quite cautious in 2025 due to the elevated cost of living, and the uncertainty generated by the strange actions of President Trump.
In the year to March, the price of pharmaceutical produces was 1.9 per cent higher than a year ago, with prescribed drug prices up by just 0.7 per cent, and the price of other medicines up by 3.3 per cent.
The general retail sector in Ireland is operating in a challenged environment at the money due to a challenged consumer, and the escalation in the cost of doing business. To help the SME sector the Government is reported to be contemplating deferring the minimum wage increase and pushing the starting date for pension auto-enrolment out from its planned start date of 1 September.
Pension auto-enrolment (AE) is due to be introduced in September 2025, but the starting date is likely to be pushed out. This initiative is in response to the fact that pension coverage in Ireland has remained stubbornly low in the private sector, and it is estimated that only one third of private sector workers has active pension coverage.
The proposed scheme is not an income tax relief model, but rather an SSIA style Government top-up model. Contribution rates will be applied to gross wages but deducted from net wages.
| YEAR | EMPLOYEE | EMPLOYER | BONUS INCENTIVE | TOTAL CONTRIBUTION | APPLIED TO |
| Year 1-3 | 1.5 per cent | 1.5 per cent | 0.5 per cent | 3.5 per cent | Full gross pay |
| Year 4-6 | 3.0 per cent | 3.0 per cent | 1.0 per cent | 7.0 per cent | Full gross pay |
| Year 7-9 | 4.5 per cent | 4.5 per cent | 1.5 per cent | 10.5 per cent | Full gross pay |
| Year 10 Onwards | 6.0 per cent | 6.0 per cent | 2.0 per cent | 14.0 per cent | Full gross pay |
Employees aged between 23 and 60 who are earning more than €20,000 per annum will be included, unless they are making ongoing PRSA or occupational pension contributions via payroll. Employees not in a PRSA or occupation pension who are outside the age and earnings parameters can opt in to AE.
Employees who are Class S PRSI contributors, typically company owners or directors; and employees who have pension contributions to a PRSA or occupational scheme recorded via their payroll software or payslip, whether the contribution is from employee, employer or both; and the self-employed and unemployed are not included in the AE scheme.
For all employers, awareness of the terms and business costs relating to auto-enrolment need to be seriously considered.
Jim Power is an independent economist and co-host of The Other Hand podcast.
Jim Power
Economist
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