Paschal Donohoe (Dublin Central, Fine Gael)

I thank the Cathaoirleach for the opportunity to speak in the Seanad this afternoon on the economic outlook for our country. As a former Member of this House, it is always an honour to be here. Before I discuss the Irish economic outlook, it is important to underline the global environment we are in. As all Senators will be aware, uncertainty is now the dominant feature of the world economy. In particular, there is uncertainty regarding the rules that have, I believe, served us well with regard to trade. Recent developments in policies in that area represent a real shift away from economic integration. While we have become used to concepts such as friendshoring, that is, moving the supply chains of large companies to countries that are friendly to them, and de-risking, which is spreading how goods and services are made all over the world, the imposition of tariffs represents a real acceleration in a turn inwards.

Unfortunately, there is growing evidence of fragmentation and change in the global economy along political lines and there is a real risk to the gains we have made from cross-border trade and the greater flow of investment throughout the world. As Ireland is a major beneficiary from those kinds of dynamics, our economy is exposed to the changes under way.

As I have made clear on many occasions, the recent introduction of widespread tariffs is deeply regrettable. They are economically and socially harmful. They drive up the cost of doing business. They put upward pressure on prices for households, creating real difficulties for standards of living and they do all of this by then creating uncertainty for how companies invest their money. This is a lose-lose environment that could harm everybody.

I therefore really welcome the recent decision by President Trump's Administration to introduce a three-month pause in the implementation of widespread reciprocal tariffs. I know there has been a change in this approach to the EU in recent weeks but in recent days a further opportunity appears to have been created to allow engagement between the US and the EU. This is really important. Trade between the US and the European Union is worth billions of euro per day. A 10% tariff on that trade is something that not only would have a real effect on the economies involved in that trade, it would have a real effect on the performance of the world, from an economic point of view, in the time ahead. That is why we are making the case for all efforts with regard to negotiation. That is why Ireland will continue to pursue an outward looking, open, rules-based approach to trade policy. We have been in continued discussion at EU and US levels in this regard. That is how the world looks at the moment. Where does Ireland stand?

Overall, the latest data shows that we are currently in a strong position. There were 90,000 jobs created last year with a record high of 2.8 million people at work in our country. The unemployment rate stood at just over 4% in the first quarter of this year while the number of women at work in our country is at a record level. As expected, inflation continued to moderate and it is continuing to come down. I know prices are still high but the rates of increase are coming down. In the first quarter of this year we saw the growth of real earning beginning to accelerate. All of this, I hope and believe, will help with the pressures households and businesses face.

While I am encouraged by this resilience, it is also crucial we do not become complacent. The reasons for this risk were outlined in the annual progress report the Government published a few weeks ago. It showed that on the basis of modified domestic demand, which is a way of measuring our economy that strips out the influence of very big companies on our accounts, and if we assumed there were no transatlantic tariffs in place, our economy will grow by approximately 2.5% per cent this year and 2.75% per cent next year. We also published alternative scenarios in this document. One scenario, in particular, outlines the impact of 10% tariffs on our economy, which would reduce the rate of growth in our economy to approximately 2% this year and 1.75% next year, with the economy growing by approximately 1.5% less than we would have expected by the end of 2026. Unfortunately, that particular alternative scenario shows signs of being overtaken by events as we see debates about tariffs that are considerably larger than 10%. It goes without saying that if we ended up in a position that US tariffs on EU goods were to increase to 50%, the consequences would be very real and serious for the EU and Ireland. The EU response would also cause challenges and difficulties for the US. That is why the engagement that will happen after the discussion between President von der Leyen and President Trump is so important. Turning to our public finances, we expect a surplus of €8.7 billion this year. Nearly all of that is created by our corporate tax receipts, and many of those receipts are created by a small number of taxpayers. I have had the privilege of making the case for many years in the Seanad for running those budget surpluses. Having them in place now gives us a buffer in the event of any significant change in the taxes we collect here in Ireland. I sound a note of caution, however, that this buffer could be quickly used up if the more difficult scenarios being contemplated at the moment for the economy of our world and for the relationship between the EU and the US were to come to pass.

Thankfully, however, it is projected that by the end of this year we will have €16 billion set aside in our Future Ireland Fund and the Infrastructure, Climate and Nature Fund, giving us the money we will need to respond to any change in our economic outlook and to help with any transition that may be needed if the world or our tax receipts begin to change significantly.

The potential impacts on the Irish economy from a change in world trade are evident. That is why the negotiations happening now are so important. It is crucial that we redouble our efforts to boost the competitiveness of our economy. In the current environment, competition for inward investment is intensifying, and work is now under way across the Government to improve our attractiveness as a location for those decisions. Improving our energy and water infrastructure, boosting our transport and housing stock and making our regulatory environment a little simpler will all be necessary to achieve this goal while at the same time investing in our education, skills and training. We need to ensure we will have budget policies that recognise the more challenging environment we are in. Work is now under way in the Government on this because it is clear that we live now in a world full of more uncertainty and that uncertainty is creating a larger frequency for shocks.

To end on a positive note that I believe is justified, if we build on the work we have done, in turn we will build up the capacity to absorb these shocks and the ability to protect jobs and help with living standards in the country we are all privileged to serve.