Ireland's economy is set to grow a little slower this year due to an "unprecedented" rise in global risks that may have a much larger impact on the foreign multinational-focused economy if they materialise, the country's central bank said on Wednesday.
Ireland is among the countries most exposed to sharp policy changes proposed by U.S. President Donald Trump, with a significant proportion of employment, tax receipts and exports all directly dependent on a cluster of U.S. multinational firms.
The central bank lowered its forecast for modified domestic demand (MDD) - its preferred gauge of economic performance - to 2.7% from the 3.1% estimated in December due to the uncertainty set to weigh slightly on consumption, exports and investment.
Trump last week criticised Ireland's "massive" goods trade surplus with the U.S. and its "luring away" of U.S. drugmakers with a decades-long low corporate tax rate. Trump has threatened a 25% tariff on pharmaceutical imports and on goods from the EU.
While the central bank did not estimate the scale of any hit from tariffs, it said they could have a significant effect on the operations of multinationals in Ireland, particularly if they are accompanied by broader U.S. corporate tax changes and incentives to move production and profits back to the U.S.
Ireland's mainly U.S.-owned foreign multinational sector employs 11% of all workers, and contributes most of a corporate tax take that has handed Ireland large budget surpluses, as well as around half of income tax and VAT paid by all companies.
Ireland could face a fiscal shock if changes to U.S. policy removed a large amount of the corporation tax that makes up 26% of all tax collected, Central Bank Director of Economics Robert Kelly.
"(It) emphasise once again the vulnerability of Ireland's tax base to the decisions of a small number of foreign companies," the bank said in the quarterly economic outlook.
However, it added that there was also potential upside to its export forecasts - absent any tariffs - due to a surge in pharmaceutical exports to the U.S. since last July linked to the production of weight-loss drugs that more recently, may partly be driven by stockpiling ahead of potential tariffs.
Data on Tuesday showed that Irish exports of pharmaceutical and medical products grew by 68% or 6 billion euros year-on-year in January, accounting for 61% of all goods sold abroad.
