Irish economy to slow and worse may lie ahead, central bank warns

DUBLIN, June 19 (Reuters) - Ireland's domestic economic growth is expected to slow to around 2% this year and next if the United States hits European Union exports with a 20% tariff, and could fall much more steeply if a deeper trade war follows, Ireland's central bank said.

Ireland is among the countries most exposed to President Donald Trump's sweeping economic policies, with a significant proportion of employment, tax receipts and exports dependent on a cluster of mainly tech and pharmaceutical U.S. multinationals.

The central bank cut its estimate for 2025 modified domestic demand (MDD) - its preferred gauge of economic performance - to 2.0% from the 2.7% estimated in March and its 2026 forecast to 2.1% from 2.5% due to the uncertainty weighing on investment.

That was broadly in line with recent finance ministry forecasts. As a member of the EU, Ireland faces tariffs of 10% on around a quarter of its exports that could rise to 20% after a 90-day U.S. pause ends on July 8.

The central bank said MDD would fall to just 0.8% this year and 1% in 2026 in an adverse scenario where a 20% tariff is extended to all goods, taking in key sectors for Ireland such as pharma and semiconductors, and the EU retaliates with tariffs.

Ireland's booming corporate tax revenues, which have risen almost seven-fold over the last decade, could be a major vulnerability in that scenario as most of the tax is paid by U.S. multinationals.

The central bank said projected big budget surpluses could turn into a deficit of 4% of national income or 17.7 billion euros ($20.3 billion) by 2030 if the adverse economic scenario is accompanied by a loss of the recent windfall corporate tax receipts and a 20% fall in foreign multinational investment.

"This is a severe scenario but it is not the extreme scenario where you would see investment leave the state," Central Bank Director of Economics Robert Kelly said on Thursday.

The bank also estimated that gross domestic product - which Irish officials disregard due to the way multinationals distort the data - would jump eight-fold to 9.7% this year due to a surge in exports to the U.S. that data suggests was driven chiefly by ingredients used in weight-loss and diabetes drugs.

Some U.S. drugmakers with a presence in Ireland have reported stocking up ahead of threatened tariffs. ($1 = 0.8713 euros) (Reporting by Padraic Halpin in Dublin; Editing by Nia Williams)