Economic Review of 2024 and Outlook for 2025

The year 2024 was shaped by several key global and domestic trends:

• Declining inflation across many regions.
• Weak economic activity in the Eurozone, with Germany facing particular challenges.
• A faltering Chinese economy.
• A UK economy that began the year on a positive note but lost momentum as it progressed.
• A surprisingly strong US economy and the onset of monetary easing cycles by central banks worldwide.

Globally, 2024 was marked by an unprecedented number of elections, including those in Europe, the UK, the US, and Ireland. While concerns about a shift towards extremism loomed, these fears largely did not materialise. However, the election of Donald Trump has raised significant concerns regarding global trade and geopolitics. The full implications of this leadership change remain to be seen.

In 2025, fewer elections are anticipated, but notable ones include Germany’s federal election. Political instability in Germany has created a challenging environment, with potential repercussions for the broader Eurozone.

The euro faced significant depreciation in 2024, losing over 6% of its value against the dollar, driven by geopolitical uncertainties, weak economic data from major Eurozone economies, and expectations of further monetary easing by the European Central Bank (ECB).

Global Interest Rate Trends

The global interest rate cycle turned downward in 2024, driven by weakening growth and easing inflation.

• The ECB reduced its rates by 0.25% on four occasions, signalling further cuts in 2025, possibly totalling 1.25%.
• The Bank of England lowered its base rate twice, ending the year at 4.75%. More modest reductions are expected in the coming months.
• The US Federal Reserve implemented three rate cuts in 2024, with expectations of two more in 2025.

Ireland’s Economic Performance

Ireland’s economy demonstrated resilience in 2024 despite global uncertainties. Strengths included:

• Robust labour market performance.
• Strong tax revenue growth.
• A solid household balance sheet.
• A recovery in exports following setbacks in 2023.

However, consumer activity and small- to medium-sized enterprises (SMEs) faced difficulties, with sectors such as hospitality and retail being particularly affected.

Key Challenges for 2025

External factors pose significant risks to Ireland’s economic stability, including:

1. Potential global trade disruptions due to US tariffs.
2. Inflationary pressures driven by energy prices and labour market dynamics.
3. Geopolitical uncertainties, including the ongoing conflict in Ukraine and tensions in the Middle East.
4. Over-reliance on US multinationals for employment and tax revenues.

The impact of US tariffs, dubbed “Trump Tariffs,” is particularly concerning for Ireland due to its open economy and heavy reliance on exports, particularly to the United States. These tariffs could lead to higher costs for Irish goods entering the US market, reducing competitiveness and potentially leading to a decline in export volumes. Additionally, retaliatory trade measures from affected nations could create broader trade disruptions, impacting Ireland’s global trade relationships.

Adding to this challenge, US President Donald Trump recently withdrew support for the global tax pact agreed at the Organisation for Economic Co-operation and Development (OECD). This agreement, designed to implement a global minimum corporate tax rate of 15% and allow countries to levy top-up taxes on multinationals, had been accepted by Ireland, which committed to increasing its corporate tax rate from 12.5% to align with the pact.

Trump’s executive order to withdraw the US from the deal and impose retaliatory measures against countries applying “extraterritorial” levies on US multinationals further complicates matters. Ireland, home to many US multinationals, is now at risk of punitive tariffs. In 2024, Ireland exported over €67.4 billion worth of goods to the US, while imports from the US amounted to just €20.7 billion, highlighting the potential vulnerability of this trade relationship.

Trump’s broader trade agenda, which includes 25% tariffs against Canada, Mexico, and the EU, underscores his “America First” trade policy. The European Commission has expressed concerns about these actions, warning of a “global race to the bottom” in trade relations.

Sectoral Insights

• Housing Market: Property prices and rents continued their upward trajectory in 2024, driven by strong demand and insufficient supply. With interest rates trending lower, affordability may improve, spurring further demand in 2025.
• Labour Market: Employment reached a record high in 2024, reflecting robust job creation across multiple sectors. However, challenges in retail and agriculture persisted.
• External Trade: Ireland’s export performance rebounded strongly, though dependency on specific sectors, such as pharmaceuticals, and markets like the US, underscores the need for diversification. The looming risk of increased tariffs from the US further highlights the importance of expanding trade partnerships and reducing reliance on a single market.

Conclusion

While Ireland’s economic fundamentals remain strong, vigilance is required to navigate the challenges posed by global geopolitical and economic uncertainties. Proactive policies and strategic investments in critical areas such as housing, infrastructure, and energy will be essential to maintaining stability and growth in 2025 and beyond.

Contact F J Hanly & Associates for expert financial guidance to help you navigate these uncertain times.