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Investing.com -- Ireland’s economy appears well-positioned to navigate potential risks from U.S. policy changes, according to a new analysis by Capital Economics on Thursday.
Despite concerns about Ireland’s close economic ties to the United States, which accounts for 30% of Irish goods exports and significant inward investment, the research suggests the impact of potential U.S. tariffs on pharmaceuticals and tax policy changes may be less severe than initially feared.
The analysis indicates that more than half of Ireland’s pharmaceutical exports would remain unaffected by U.S. tariffs as they are destined for other countries.
Additionally, the sector is expected to maintain its international competitiveness even if faced with new U.S. trade barriers.
On the tax front, while changes to U.S. tax policies could reduce Ireland’s attractiveness for multinational tax optimization and potentially decrease GDP figures and corporate tax revenues, more meaningful economic indicators such as modified domestic demand (MDD) and employment would likely see less impact.
Ireland’s strong fiscal position provides further insulation against these risks.
The country currently runs a large budget surplus and maintains a low debt burden, which should help sustain public finances even if corporate tax revenue declines.
The Irish economy has significantly outperformed the euro-zone since the pandemic according to MDD, which excludes spending with little relation to domestic activity.
This growth has been accompanied by rapid employment increases.
Capital Economics projects Ireland’s average growth rate, measured by MDD, will continue to exceed the euro-zone’s for the foreseeable future, with expectations of over 2% annual growth through the rest of this decade compared to around 1% for the rest of the euro-zone.
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