The global economic and geo-political environment continues to be dominated by the words and actions of President Trump. Despite statements of intent regarding the speed with which he would end the horrific wars in Gaza and Ukraine, both are still ongoing and intensifying, and it remains to be seen how both conflicts can possibly be brought to a conclusion anytime soon.
On the economic front, his approach to free trade and tariffs is still dominating the agenda. The EU and the US reached a framework agreement on the future trading relationship on a golf course in Scotland in July. It was a verbal agreement that lacked rigour and detail. The proposal is that from 7 August there would be a general 15 per cent tariff on most EU exports to the US, which is now happening. This was initially thought to apply to pharmaceutical imports from the EU, but this subsequently became less certain.
In June, the Secretary of the Treasury initiated a Section 232 Investigation to determine whether imports of ‘pharmaceuticals, pharmaceutical ingredients and their derivative products’ threaten to impair US national security. On 3 June the President doubled tariffs on imports of steel and aluminium to 50 per cent following a similar Section 232 Investigation. The problem is how ‘a threat to national security’ is defined. The reality is that it can mean whatever the US administration wants it to mean. Indeed, a few days after the agreement was reached in Scotland, President Trump stated that initially there would be a small tariff on pharmaceuticals (15 per cent), but that within 18 months it would go to 150 per cent, and then to 250 per cent, because the US wants pharmaceuticals to be manufactured in the US. Then on 21 August the US confirmed that it ‘intends’ to make sure that any future tariffs on pharmaceutical and semiconductor imports from the EU would be capped at 15 per cent.
Despite the trade framework that has been agreed, there is still a degree of uncertainty. In any event, a general 15 per cent tariff is not a good outcome for the EU, but Ireland is particularly exposed given its high dependence on the US export market.
Budget 2026 will be delivered on 7 October. The Summer Economic Statement (SES) was published in July. It is the Government’s first indication of the broad parameters of the upcoming budget. A budget package of €9.4 billion has been targeted, with a net tax package of €1.5 billion, and an expenditure package of €7.9 billion. If the Government delivers the promised 9 per cent VAT rate for the food element of the hospitality sector, this could use up €580 million of the €1.5 billion tax package, leaving little room for personal tax concessions. The expenditure package will be comprised of current expenditure increases of €5.9 billion or almost 75 per cent of the total; and capital spending of €2 billion.
The ability to deliver the proposed budgetary package, and indeed to deliver the ambitious, but detail lacking, revised National Development Plan (NDP), will be heavily contingent on the future performance of the economy, and especially the policies of President Trump. There is not a lot of detail in relation to economic assumptions in the SES, but it is interesting to note that for 2025 the Department of Finance is projecting growth of 2 per cent in Modified Domestic Demand (MDD), down from its forecast of 2.5 per cent in April, and 2.9 per cent in Budget 2025 last October. For 2026, MDD is projected to grow by 1.8 per cent, down from 2.8 per cent in April, and 3 per cent in Budget 2025. There is downward creep occurring in Ireland’s economic projections, which seems logical in the context of Trump-induced uncertainty.
On the economic front, the Irish economy is still performing reasonably well, but there is a definite softening in activity levels, although economic data in Ireland and elsewhere is being heavily distorted by the front-loading of activity ahead of tariffs:
With Budget 2026 now very close, the coming weeks will be very interesting in terms of Government attitudes. The Department of Finance and DPER will be seeking to exert tight control over all types of public expenditure and taxation. Budget 2026 will not be a bonanza for anyone.
In the face of economic uncertainty emanating from Trump’s policies on tariffs, and the high cost of living, consumer behaviour has been somewhat cautious so far this year. In July, consumer confidence fell to a three-month low.
Consumer confidence
Source: ILCU
In the first half of 2025, the value of retail sales was 1.6 per cent higher than a year earlier and the volume of sales was 1.4 per cent higher. When car sales are excluded, the value of sales was 1.3 per cent higher, and the volume of sales was 1.2 per cent higher. These growth rates describe modest activity levels for the retail sector. It is a challenging environment for many consumer-facing businesses.
In the pharmacy sector, retail sales of pharmaceutical, medical and cosmetic articles were 2.9 per cent higher in value terms and 2.1 per cent higher in volume terms in the first half of the year.
In the year to July, the annual rate of inflation stood at 1.7 per cent. The annual rate of inflation stood at 1.7 per cent for pharmaceutical products, with prescribed drugs inflation running at 1.2 per cent, and other medicines 2.3 per cent.
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