## 1. Real GDP and Price Index Impacts in Tariff and Trade Agreements Scenarios

## Source details

**Canonical URL:** [1. Real GDP and Price Index Impacts in Tariff and Trade Agreements Scenarios](https://www.imf.org/-/media/files/publications/cr/2026/english/1irlea2026002.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/cr/2026/english/1irlea2026002.pdf.md)
- [Structured JSON version](/-/media/files/publications/cr/2026/english/1irlea2026002.pdf.json)

---

### Model, calibration, and scenario design
- Model framework:
  - Static, multi‑region, multi‑sector computable general equilibrium model (CGE‑MOD).
  - Nested constant elasticity of substitution (CES) technologies; Armington trade structure; constant elasticity of transformation (CET) for domestic vs. export allocation.
  - Labor and capital mobile across sectors within each region; an immobile natural‑resource factor anchors fossil‑fuel supply.
  - Electricity generation disaggregated by technology (renewables, nuclear, fossil‑fuel‑based generation, other sources).
  - CO₂ emissions linked to fuel use through fixed emissions coefficients; carbon pricing and emissions trading systems can be implemented.
- Calibration and data:
  - Benchmarked to GTAP 11 Power dataset and calibrated to a 2025 baseline.
  - Global aggregation into eight regions: Ireland, the rest of the European Union, the United States, the United Kingdom, China, India, Mercosur, and the rest of the world.
  - Aggregation into 44 economic sectors.
  - Baseline includes an initial economy‑wide carbon price of around USD 72.3 per ton of CO₂.
- Scenario groups:
  - Tariff and Trade Agreements: USTar, EUMSC, EUIND, UST+FT.
  - AI‑driven Productivity Gains: AI‑L, AI‑M, AI‑H.
  - Carbon Pricing Policy: AIL‑CP, AIM‑CP, AIH‑CP, CARB20.
- Tariff inputs and representation:
  - Tariff inputs drawn from the WTO Tariff & Trade Data (TTD) platform using the WTO–IMF Tariff Tracker.
  - Trade agreements modeled as reductions in bilateral goods tariffs to zero for the relevant partners; non‑tariff barriers are not included.
- Interpretation caveats:
  - Comparative static, medium‑to‑long‑run reallocations; no short‑run dynamics or transition paths.
  - AI adoption modeled as exogenous sector‑ and region‑specific productivity improvements; AI‑specific energy use (e.g., data centers) not explicitly modeled.
  - Climate policy represented through carbon pricing with revenues rebated lump‑sum to households; alternative instruments (regulation, subsidies) not modeled.

### Key quantitative findings on trade shocks and macroeconomic effects
- Global effects of tariff shock (model results):
  - World real output declines by 0.13 percent.
  - Global real exports fall by 2.84 percent.
  - Global price index rises by 0.64 percent.
- Ireland‑specific aggregate outcomes:
  - Trade policy shocks primarily redirect trade across partners and sectors; aggregate output and export effects are modest.
  - Ireland’s real GDP increases marginally under the U.S. tariff shock; the increase remains below 0.20 percent even when tariffs are combined with the two EU trade agreements (UST+FT).
  - Price index changes in Ireland are small under the tariff shock and modestly larger in the combined scenario.
- Mechanisms and sectoral context:
  - Limited aggregate effects reflect economy‑wide reallocation of labor and capital across sectors that offsets large sector‑ and partner‑specific export shifts.
  - Pharmaceuticals face comparatively lighter tariff increases than many other traded goods, cushioning Ireland’s core export base due to specialization in high‑value tradable sectors.
  - Preferential trade agreements (EU–Mercosur and EU–India) modeled as tariff‑only reductions mainly re‑route trade at the margin (trade creation and diversion) rather than generating large economy‑wide gains.
- Global heterogeneity and distributional implications:
  - Tariff changes are uneven across sectors and partners; sectoral winners and losers emerge through relative price and market‑access channels.
  - Adjustment margin dominated by reallocation rather than broad‑based domestic activity shifts.

### Policy and analytical implications (trade)
- Trade policy conclusions:
  - Tariff shocks and tariff‑only preferential agreements will predominantly operate through trade diversion and sectoral reallocation; headline GDP effects can be limited even when bilateral trade patterns shift materially.
  - Ignoring non‑tariff barriers understates the potential magnitude of trade agreement impacts; inclusion of non‑tariff measures could change quantitative results.
- Sectoral resilience:
  - Ireland’s specialization in pharmaceuticals and other high‑value sectors provides partial insulation from tariff increases affecting other goods.
- Complementarities with AI and climate policy:
  - The framework allows analysis of interactions with AI‑driven productivity gains and carbon pricing; tariff‑induced trade reallocation may interact with supply‑side productivity changes and energy‑use responses in ways that matter for emissions and the electricity mix.

*Source: IMF staff calculations and scenario analysis as described in the chapter "Real GDP and Price Index Impacts in Tariff and Trade Agreements Scenarios."*

### Export volumes respond more than output: trade shocks
- Ireland export and price responses:
  - U.S. tariff scenario:
    - Ireland’s total real exports decline by 0.89 percent.
    - Average export price rises by 1.04 percent.
  - EU trade agreements in isolation:
    - Marginal gains in export volumes and negligible changes in export prices.
  - UST+FT combined:
    - Aggregate export volumes: −0.83 percent.
    - Export prices increase to 1.14 percent.
  - Ireland’s terms of trade move only marginally across scenarios, indicating quantity reallocation rather than price‑based gains from trade.
- Bilateral export percent deviations from baseline (USTar):
  - CHN: −9.07
  - GBR: −1.52
  - IND: −7.51
  - NCM: −3.44
  - REU: −5.38
  - USA: 18.78
  - ROW: −5.45
- Bilateral export percent deviations under other scenarios:
  - EUMSC — NCM: 15.14; CHN: −0.49; GBR: 0.04; IND: −0.35; REU: 0.14; USA: −0.44; ROW: −0.31
  - EUIND — IND: 18.10; CHN: −0.56; GBR: −0.17; NCM: −0.33; REU: 0.01; USA: −0.35; ROW: −0.36
  - UST+FT — CHN: −10.01; GBR: −1.64; IND: 8.84; NCM: 10.26; REU: −5.26; USA: 18.08; ROW: −6.06
- Imports under U.S. tariff scenario (percent deviations):
  - CHN: 10.87; GBR: −0.66; IND: 9.96; NCM: 3.41; REU: 2.91; USA: −9.39; ROW: 3.59
- Interpretation:
  - Trade patterns point to re‑routing across partners (trade diversion) rather than broad‑based trade compression; Ireland’s external adjustment is driven by shifts in bilateral market shares and sourcing patterns.

### Macro indicators and factor incomes in trade scenarios (selected percent deviations)
- Under scenarios USTar / EUMSC / EUIND / UST+FT (selected indicators):
  - Private Consumption Quantity: 0.38; 0.05; 0.08; 0.51
  - Private Consumption Price: 0.57; 0.04; 0.05; 0.65
  - Capital Income: 2.02; 0.08; 0.05; 2.14
  - Labor Income: −1.16; 0.06; 0.11; −0.98
  - Natural Resources Income: −8.8; −0.87; 1.65; −8.21
  - Total Import Quantity: −0.77; 0.05; 0.09; −0.64
  - Total Import Price: 0.95; 0.03; 0.02; 0.99
  - Terms of Trade (Fisher): 1.00; 1.00; 1.00; 1.00
  - Carbon Revenues: 0.05; 0.05; 0.16; 0.25
  - Tax Revenues: 0.04; 0.03; 0.05; 0.17

### Sectoral impacts and factor reallocation under trade shocks
- Largest adjustments concentrated in a small set of highly traded activities.
- Illustrative sectoral outcomes under U.S. tariff scenario:
  - Pharmaceutical exports to the United States: 68.51 percent increase.
  - Pharmaceutical shipments to China: −17.48 percent.
  - Pharmaceutical shipments to REU: −12.06 percent.
- Factor movements:
  - Expanding sectors absorb additional labor and capital.
  - Capital reallocation broadly mirrors labor movements but magnitudes differ with capital intensity and adjustment costs.
  - Result: capital income rises modestly while labor income declines slightly under the U.S. tariff shock; natural‑resource income falls where demand weakens.

*Source: IMF staff calculations.*

### Artificial Intelligence (AI) adoption: productivity and macro effects
- Aggregate real GDP impacts across AI scenarios:
  - AI-L (low): 2.50 percent
  - AI-M (medium): 6.89 percent
  - AI-H (high): 10.12 percent
- Price index impacts:
  - AI-L: −0.16 percent
  - AI-H: −0.93 percent
- Real exports across AI scenarios:
  - AI-L: 2.69 percent
  - AI-M: 7.53 percent
  - AI-H: 11.11 percent
- Export price changes across AI scenarios:
  - AI-L: −0.3 percent
  - AI-H: −1.56 percent
- Bilateral export deviations under AI scenarios (percent deviation from baseline):
  - AI-L: CHN 2.81; GBR 2.12; IND 2.18; NCM 3.21; REU 2.95; USA 3.08; ROW 2.24
  - AI-M: CHN 7.89; GBR 5.81; IND 6.35; NCM 9.2; REU 8.26; USA 8.63; ROW 6.26
  - AI-H: CHN 11.68; GBR 8.41; IND 9.19; NCM 13.75; REU 12.19; USA 12.86; ROW 9.23
- Imports under AI scenarios (percent deviation from baseline):
  - AI-L: CHN 2.35; GBR 4.1; IND 3.13; NCM 2.34; REU 3.11; USA 4.27; ROW 3.19
  - AI-M: CHN 6.59; GBR 11.47; IND 8.53; NCM 5.99; REU 8.64; USA 12.12; ROW 8.74
  - AI-H: CHN 9.86; GBR 16.97; IND 12.52; NCM 8.31; REU 12.69; USA 18.1; ROW 12.82
- Sectoral concentration of AI gains:
  - Under AI-H: real output rises by around 30 percent in chemicals.
  - Under AI-H: real output rises by around 20 percent or more in several tradable services and logistics‑related sectors.
  - Agriculture experiences single‑digit gains.
  - Export growth under AI-H: around 30 percent in chemicals; around 15–20 percent in advanced services.
- Distributional and income effects (selected figures):
  - Private Consumption Quantity: AI-L 7.25; AI-M 20; AI-H 29.36
  - Private Consumption Price: AI-L −0.08; AI-M −0.32; AI-H −0.57
  - Capital Income: AI-L 2.7; AI-M 7.21; AI-H 10.39
  - Labor Income: AI-L 1.39; AI-M 3.69; AI-H 5.17
  - Natural Resources Income: AI-L 15.4; AI-M 54.61; AI-H 93.41
  - Total Import Quantity: AI-L 3.6; AI-M 10.07; AI-H 14.9
  - Total Import Price: AI-L −0.49; AI-M −1.47; AI-H −2.25
  - Carbon Revenues: AI-L 4.19; AI-M 11.47; AI-H 16.66
  - Tax Revenues: AI-L 3.59; AI-M 9.55; AI-H 13.89

### Energy, emissions, and electricity mix under AI adoption
- Total CO2 emissions increase:
  - AI-L: about 4 percent
  - AI-M: around 11 percent
  - AI-H: around 17 percent
- Renewable share in electricity production:
  - Baseline renewable share: 40 percent
  - AI-H renewable share: just below 39 percent
- Interpretation:
  - AI‑driven productivity raises output and energy demand faster than endogenous adjustment of the power mix, yielding higher emissions and modest dilution of the renewable share.
  - Note: Analysis does not incorporate AI‑specific electricity demand such as from datacenters; model calibrated to GTAP Power 2017 database assumptions.

### Labor reallocation under AI
- Sectoral labor shifts:
  - Pharmaceuticals: labor declines by about 2 percent under AI-L and by over 7 percent under AI-H.
  - Labor rises by high‑single‑ to double‑digit percentages in chemicals, transport, and certain services under AI‑M and AI‑H.
- Net effect:
  - Capital’s share of income rises strongly while labor income also grows in aggregate.

### Carbon pricing policy scenarios and trade‑offs
- Design:
  - Carbon pricing used to offset emissions impact of AI in three scenarios (keeping emissions at baseline) and in a fourth scenario (CARB20) to reduce emissions by 20 percent relative to baseline (without AI).
  - Mitigation targets in the climate policy scenarios are imposed only on Ireland; climate policies in other regions remain unchanged.
- Effects of carbon pricing:
  - Raises cost of emissions‑intensive activities and induces substitution toward cleaner production.
  - Generates economy‑wide price effects and reallocates sectoral composition of output.
  - When combined with AI, climate policy slightly reduces gains from productivity; without AI, carbon pricing mainly raises costs and reallocates resources.
- Electricity mix and carbon prices:
  - Renewable share in electricity production by scenario (Percent): Baseline 40 percent; AIL‑CP 44.3 percent; AIM‑CP 51.1 percent; AIH‑CP 55.6 percent; CARB20 nearly 62 percent.
  - Carbon price increments above the existing baseline (USD per ton of CO₂): Offsetting low‑AI emissions: about USD 10.6 per ton of CO₂; High AI adoption: USD 45.1 per ton of CO₂; CARB20 (20‑percent emissions reduction without AI): USD 66.6 per ton of CO₂.
  - Interpretation: increasing marginal abatement costs as emissions constraints tighten; higher carbon prices reorient production toward low‑emission technologies but raise prices and may cause modest output losses absent productivity gains.
- Carbon revenues and fiscal indicators (selected from Table 7):
  - Carbon Revenues: AIL‑CP 14.71; AIM‑CP 41.77; AIH‑CP 62.31; CARB20 53.64
  - Tax Revenues: AIL‑CP 3.03; AIM‑CP 8.23; AIH‑CP 11.91; CARB20 −2.46
  - Private Consumption Quantity: AIL‑CP 7.04; AIM‑CP 19.37; AIH‑CP 28.4; CARB20 −1.21
  - Private Consumption Price: AIL‑CP 0.02; AIM‑CP −0.03; AIH‑CP −0.15; CARB20 0.62
  - Capital Income: AIL‑CP 2.69; AIM‑CP 7.16; AIH‑CP 10.33; CARB20 −0.1
  - Labor Income: AIL‑CP 1.22; AIM‑CP 3.21; AIH‑CP 4.45; CARB20 −0.92
  - Natural Resources Income: AIL‑CP 14.9; AIM‑CP 53.08; AIH‑CP 90.98; CARB20 −2.52
  - Total Import Quantity: AIL‑CP 3.46; AIM‑CP 9.66; AIH‑CP 14.29; CARB20 −0.75
  - Total Import Price: AIL‑CP −0.49; AIM‑CP −1.48; AIH‑CP −2.27; CARB20 0.01
  - Terms of Trade (Fisher): AIL‑CP 1.00; AIM‑CP 1.01; AIH‑CP 1.01; CARB20 1.00
- Trade impacts under combined AI–carbon scenarios (real exports, percent deviation):
  - AIL‑CP: +2.55 percent
  - AIM‑CP: +7.14 percent
  - AIH‑CP: +10.55 percent
  - CARB20: −0.71 percent
- Export price changes under combined scenarios:
  - Export prices fall by 0.28–1.50 percent in combined AI–carbon scenarios.
  - CARB20 export prices: +0.14 percent.

### Sectoral adjustments, factor incomes, and labor reallocation under carbon pricing
- Sectoral patterns:
  - Carbon pricing reinforces compositional shifts toward low‑carbon activities: fossil‑fuel‑based electricity and other emissions‑intensive sectors contract, while renewables and less carbon‑intensive services expand.
  - In combined AI–carbon scenarios, reallocations occur alongside productivity‑driven growth; in CARB20 without AI, reallocations occur amid broader declines in carbon‑intensive sectors and only limited gains elsewhere.
- Factor incomes:
  - Combined AI–carbon: capital and labor incomes rise, slightly less than in AI‑only scenarios; natural‑resource income increases strongly.
  - CARB20: all factor incomes decline modestly, with largest contraction in natural‑resource income.
- Labor movement:
  - Employment falls sharply in fossil electricity across all climate scenarios.
  - Labor reallocates toward renewable electricity, construction, and market services.
  - In combined AI–carbon scenarios, reallocation occurs within an expanding economy; in CARB20 it reflects adjustment under a mild contraction.

### Policy implications and concluding remarks
- Carbon pricing:
  - Necessary to ensure productivity gains do not translate into persistently higher emissions or an unsustainable energy mix; it provides a clear signal redirecting production, trade, and factor allocation toward low‑emission activities.
- Complementary investments and policies:
  - Continuing investment in renewable energy capacity.
  - Upgrading grid infrastructure to accommodate rising electricity demand associated with AI‑related activity and digitalization.
  - Expanding the sectoral coverage of existing climate policy frameworks and strengthening electricity networks.
  - Facilitating integration of European energy markets including renewables.
- Labor‑market and distributional policy recommendations:
  - Strengthen active labor‑market policies.
  - Provide AI‑specific training and upskilling.
  - Implement skill‑matching mechanisms to facilitate reskilling and labor mobility.
- Overall interpretation:
  - Well‑designed climate policy combined with policies that manage labor reallocation and skills can reconcile Ireland’s productivity‑driven growth with decarbonization objectives, enabling a sustainable transition that aligns long‑term economic performance with climate commitments.

*Source: IMF staff calculations and scenario analysis from the chapter "Real GDP and Price Index Impacts in Tariff and Trade Agreements Scenarios."*

### Annex III — Ireland: Sectoral real export (percent deviation from baseline, selected rows)
- Table unit: "Percent deviation from baseline"; column order: USTar / EUMSC / EUIND / UST+FT / AI‑L / AI‑M / AI‑H / AIL‑CP / AIM‑CP / AIH‑CP / CARB20 / AGF
- Selected sector rows (Sector — values):
  - USTar — 1.80 / 0.15 / -0.47 / 1.49 / -0.08 / 2.20 / 5.50 / -0.04 / 2.32 / 5.69 / 0.17
  - FSH — -0.99 / -0.11 / 0.09 / -1.01 / 0.95 / 2.51 / 3.51 / 1.00 / 2.65 / 3.72 / 0.27
  - FBT — -5.63 / -0.10 / 0.73 / -5.03 / 1.36 / 3.93 / 5.75 / 1.20 / 3.51 / 5.15 / -0.86
  - OIL — -7.61 / 0.00 / -0.12 / -7.72 / 1.92 / 5.02 / 7.07 / 0.11 / 0.10 / -0.04 / -10.30
  - CHM — -1.76 / 0.16 / -0.10 / -1.79 / 6.59 / 19.97 / 30.66 / 6.59 / 19.95 / 30.65 / 0.08
  - BPH — 11.23 / 0.00 / -0.12 / 11.11 / 0.34 / 0.30 / 0.40 / 0.39 / 0.42 / 0.56 / 0.31
  - TnD — -0.78 / 0.11 / -0.01 / -0.70 / 3.21 / 8.18 / 12.21 / 3.43 / 8.89 / 13.36 / 1.79
  - EFF — -0.43 / 0.16 / 0.10 / -0.19 / 4.63 / 12.64 / 18.20 / -16.37 / -39.22 / -52.06 / -72.84
  - ERN — -5.80 / -0.05 / -0.02 / -5.84 / 2.39 / 5.77 / 8.62 / 6.53 / 16.87 / 24.50 / 19.00
  - TTL — 2.79 / 0.38 / -1.74 / 1.31 / 3.34 / 10.37 / 16.11 / 3.67 / 11.37 / 17.67 / 1.92
  - CMN — -1.81 / 0.03 / -0.05 / -1.83 / 2.60 / 7.25 / 10.46 / 2.69 / 7.49 / 10.80 / 0.47
  - FIN — 1.31 / -0.06 / -0.10 / 1.16 / 3.91 / 10.77 / 15.70 / 4.14 / 11.43 / 16.68 / 1.24
  - REA — -2.31 / -0.01 / 0.01 / -2.31 / 4.66 / 12.51 / 18.12 / 4.73 / 12.71 / 18.41 / 0.37
  - ROS — 1.02 / -0.02 / -0.06 / 0.94 / 3.47 / 9.39 / 13.65 / 3.51 / 9.50 / 13.83 / 0.14

*Source: IMF staff calculations.*

### 1. Real GDP and Price Index Impacts in Tariff and Trade Agreements Scenarios ________ 7

### 1. Real GDP and Price Index Impacts in Tariff and Trade Agreements Scenarios

### Model, Calibration, and Scenario Design
- Model framework:
  - Static, multi‑region, multi‑sector computable general equilibrium model (CGE‑MOD).
  - Nested constant elasticity of substitution (CES) technologies; Armington trade structure; constant elasticity of transformation (CET) for domestic vs. export allocation.
  - Labor and capital mobile across sectors within each region; an immobile natural‑resource factor anchors fossil‑fuel supply.
  - Electricity generation disaggregated by technology (renewables, nuclear, fossil‑fuel‑based generation, other sources).
  - CO₂ emissions linked to fuel use through fixed emissions coefficients; carbon pricing and emissions trading systems can be implemented.
- Calibration and data:
  - Benchmarked to GTAP 11 Power dataset and calibrated to a 2025 baseline.
  - Global aggregation into eight regions: Ireland, the rest of the European Union, the United States, the United Kingdom, China, India, Mercosur, and the rest of the world.
  - Aggregation into 44 economic sectors.
  - Baseline includes an initial economy‑wide carbon price of around USD 72.3 per ton of CO₂.
- Scenario groups (Table 1):
  - Tariff and Trade Agreements: USTar, EUMSC, EUIND, UST+FT.
  - AI‑driven Productivity Gains: AI‑L, AI‑M, AI‑H.
  - Carbon Pricing Policy: AIL‑CP, AIM‑CP, AIH‑CP, CARB20.
- Tariff data sources and modeling choices:
  - Tariff inputs drawn from the WTO Tariff & Trade Data (TTD) platform using the WTO–IMF Tariff Tracker.
  - Trade agreements modeled as reductions in bilateral goods tariffs to zero for the relevant partners; non‑tariff barriers are not included.
- Interpretation caveats:
  - Comparative static, medium‑to‑long‑run reallocations; no short‑run dynamics or transition paths.
  - AI adoption modeled as exogenous sector‑ and region‑specific productivity improvements; AI‑specific energy use (e.g., data centers) not explicitly modeled.
  - Climate policy represented through carbon pricing with revenues rebated lump‑sum to households; alternative instruments (regulation, subsidies) not modeled.

### Key Quantitative Findings on Trade Shocks and Macroeconomic Effects
- Global effects of tariff shock (model results):
  - World real output declines by 0.13 percent.
  - Global real exports fall by 2.84 percent.
  - Global price index rises by 0.64 percent.
- Ireland‑specific aggregate outcomes:
  - Trade policy shocks primarily redirect trade across partners and sectors; aggregate output and export effects are modest.
  - Ireland’s real GDP increases marginally under the U.S. tariff shock; the increase remains below 0.20 percent even when tariffs are combined with the two EU trade agreements (UST+FT).
  - Price index changes in Ireland are small under the tariff shock and modestly larger in the combined scenario.
- Mechanisms and sectoral context:
  - Limited aggregate effects reflect economy‑wide reallocation of labor and capital across sectors that offsets large sector‑ and partner‑specific export shifts.
  - Pharmaceuticals face comparatively lighter tariff increases than many other traded goods, cushioning Ireland’s core export base due to specialization in high‑value tradable sectors.
  - Preferential trade agreements (EU–Mercosur and EU–India) modeled as tariff‑only reductions mainly re‑route trade at the margin (trade creation and diversion) rather than generating large economy‑wide gains.
- Global heterogeneity and distributional implications:
  - Tariff changes are uneven across sectors and partners; sectoral winners and losers emerge through relative price and market‑access channels.
  - Adjustment margin dominated by reallocation rather than broad‑based domestic activity shifts.

### Policy and Analytical Implications
- Trade policy:
  - Tariff shocks and tariff‑only preferential agreements will predominantly operate through trade diversion and sectoral reallocation; headline GDP effects can be limited even when bilateral trade patterns shift materially.
  - Ignoring non‑tariff barriers understates the potential magnitude of trade agreement impacts; inclusion of non‑tariff measures could change quantitative results.
- Sectoral resilience:
  - Ireland’s specialization in pharmaceuticals and other high‑value sectors provides partial insulation from tariff increases affecting other goods.
- Complementarities with AI and climate policy (context from scenario design):
  - The framework allows analysis of interactions with AI‑driven productivity gains and carbon pricing; tariff‑induced trade reallocation may interact with supply‑side productivity changes and energy‑use responses in ways that matter for emissions and the electricity mix.

*Source: IMF staff calculations and scenario analysis as described in the chapter "Real GDP and Price Index Impacts in Tariff and Trade Agreements Scenarios."*

### 10. Export volumes respond more than output, suggesting that trade policy shocks are

### 10. Export volumes respond more than output, suggesting that trade policy shocks are

### Export-volume and price responses under trade shocks
- Under the U.S. tariff scenario:
  - Ireland’s total real exports decline by 0.89 percent.
  - Average export price rises by 1.04 percent.
- Under the EU trade agreements in isolation:
  - Generate only marginal gains in export volumes and negligible changes in export prices.
- When U.S. tariffs are combined with the EU agreements (UST+FT):
  - Aggregate export volumes are −0.83 percent.
  - Export prices increase to 1.14 percent.
- Ireland’s terms of trade move only marginally across scenarios, indicating quantity reallocation rather than price‑based gains from trade (Table 3).

*Source: IMF staff calculations.*

### Bilateral trade flows and trade diversion
- Under the U.S. tariff scenario (USTar) — Export percent deviations from baseline (Table 2):
  - CHN: −9.07
  - GBR: −1.52
  - IND: −7.51
  - NCM: −3.44
  - REU: −5.38
  - USA: 18.78
  - ROW: −5.45
- Under the EU–Mercosur agreement (EUMSC) — Export percent deviations from baseline:
  - NCM: 15.14
  - CHN: −0.49; GBR: 0.04; IND: −0.35; REU: 0.14; USA: −0.44; ROW: −0.31
- Under the EU–India agreement (EUIND) — Export percent deviations from baseline:
  - IND: 18.10
  - CHN: −0.56; GBR: −0.17; NCM: −0.33; REU: 0.01; USA: −0.35; ROW: −0.36
- Under combined UST+FT — Export percent deviations from baseline:
  - CHN: −10.01; GBR: −1.64; IND: 8.84; NCM: 10.26; REU: −5.26; USA: 18.08; ROW: −6.06
- Imports under U.S. tariff scenario (Import percent deviations from baseline):
  - CHN: 10.87; GBR: −0.66; IND: 9.96; NCM: 3.41; REU: 2.91; USA: −9.39; ROW: 3.59
- Trade patterns point to re-routing across partners (trade diversion) rather than broad-based trade compression; Ireland’s external adjustment is driven by shifts in bilateral market shares and sourcing patterns.

*Source: IMF staff calculations.*

### Macro indicators and factor incomes in trade scenarios (Table 3)
- Selected percent deviations from baseline under scenarios USTar, EUMSC, EUIND, UST+FT:
  - Private Consumption Quantity: 0.38; 0.05; 0.08; 0.51
  - Private Consumption Price: 0.57; 0.04; 0.05; 0.65
  - Capital Income: 2.02; 0.08; 0.05; 2.14
  - Labor Income: −1.16; 0.06; 0.11; −0.98
  - Natural Resources Income: −8.8; −0.87; 1.65; −8.21
  - Total Import Quantity: −0.77; 0.05; 0.09; −0.64
  - Total Import Price: 0.95; 0.03; 0.02; 0.99
  - Terms of Trade (Fisher): 1.00; 1.00; 1.00; 1.00
  - Carbon Revenues: 0.05; 0.05; 0.16; 0.25
  - Tax Revenues: 0.04; 0.03; 0.05; 0.17

### Sectoral impacts and factor reallocation under trade shocks
- Largest adjustments concentrated in a small set of highly traded activities.
- Example under U.S. tariff scenario (sector bilateral deviations):
  - Pharmaceutical exports to the United States: 68.51 percent increase.
  - Pharmaceutical shipments to China: −17.48 percent.
  - Pharmaceutical shipments to REU: −12.06 percent.
- Non-tradable and power-related activities exhibit limited cross-border adjustment relative to tradeables.
- Factor movements:
  - Expanding sectors absorb additional labor and capital.
  - Capital reallocation broadly mirrors labor movements but magnitudes differ with capital intensity and adjustment costs.
  - Result: capital income rises modestly while labor income declines slightly under the U.S. tariff shock; natural-resource income falls where demand weakens.

*Source: IMF staff calculations.*

### Artificial Intelligence (AI) adoption: productivity and macro effects
- AI raises total factor productivity concentrated in knowledge-intensive and digitally enabled sectors.
- Ireland is well placed to translate AI-driven efficiency gains into higher output and export capacity due to sectoral concentration.
- Aggregate real GDP impacts across AI scenarios (Figure 5):
  - AI-L (low): 2.50 percent
  - AI-M (medium): 6.89 percent
  - AI-H (high): 10.12 percent
- Price index impacts:
  - AI-L: −0.16 percent
  - AI-M: (not explicitly listed numerically in the text for price index; figure shows intermediate)
  - AI-H: −0.93 percent
- Real exports across AI scenarios (Figure 6):
  - AI-L: 2.69 percent
  - AI-M: 7.53 percent
  - AI-H: 11.11 percent
- Export prices across AI scenarios:
  - AI-L: −0.3 percent
  - AI-M: −? (intermediate shown in figure)
  - AI-H: −1.56 percent
- AI-driven export growth is broad-based across partners; imports also rise with higher activity (Table 4).

*Source: IMF staff calculations.*

### Bilateral trade flows in AI scenarios (Table 4)
- Exports (percent deviation from baseline):
  - AI-L: CHN 2.81; GBR 2.12; IND 2.18; NCM 3.21; REU 2.95; USA 3.08; ROW 2.24
  - AI-M: CHN 7.89; GBR 5.81; IND 6.35; NCM 9.2; REU 8.26; USA 8.63; ROW 6.26
  - AI-H: CHN 11.68; GBR 8.41; IND 9.19; NCM 13.75; REU 12.19; USA 12.86; ROW 9.23
- Imports (percent deviation from baseline):
  - AI-L: CHN 2.35; GBR 4.1; IND 3.13; NCM 2.34; REU 3.11; USA 4.27; ROW 3.19
  - AI-M: CHN 6.59; GBR 11.47; IND 8.53; NCM 5.99; REU 8.64; USA 12.12; ROW 8.74
  - AI-H: CHN 9.86; GBR 16.97; IND 12.52; NCM 8.31; REU 12.69; USA 18.1; ROW 12.82

### Sectoral and distributional effects of AI
- Sectoral output and export effects concentrated in knowledge- and technology-intensive sectors:
  - Under AI-H: real output rises by around 30 percent in chemicals.
  - Under AI-H: real output rises by around 20 percent or more in several tradable services and logistics-related sectors.
  - Agriculture experiences single-digit gains.
  - Export growth under AI-H: around 30 percent in chemicals; around 15–20 percent in advanced services.
- Factor incomes and distributional implications (Table 5):
  - Private Consumption Quantity: AI-L 7.25; AI-M 20; AI-H 29.36
  - Private Consumption Price: AI-L −0.08; AI-M −0.32; AI-H −0.57
  - Capital Income: AI-L 2.7; AI-M 7.21; AI-H 10.39
  - Labor Income: AI-L 1.39; AI-M 3.69; AI-H 5.17
  - Natural Resources Income: AI-L 15.4; AI-M 54.61; AI-H 93.41
  - Total Import Quantity: AI-L 3.6; AI-M 10.07; AI-H 14.9
  - Total Import Price: AI-L −0.49; AI-M −1.47; AI-H −2.25
  - Terms of Trade (Fisher): AI-L 1.00; AI-M 1.01; AI-H 1.01
  - Carbon Revenues: AI-L 4.19; AI-M 11.47; AI-H 16.66
  - Tax Revenues: AI-L 3.59; AI-M 9.55; AI-H 13.89

### Energy, emissions, and electricity mix under AI adoption
- Total CO2 emissions increase:
  - AI-L: about 4 percent
  - AI-M: around 11 percent
  - AI-H: around 17 percent
- Renewable share in electricity production declines slightly:
  - Baseline renewable share: 40 percent
  - AI-H renewable share: just below 39 percent
- Interpretation: AI-driven productivity raises output and energy demand faster than endogenous adjustment of the power mix, yielding higher emissions and modest dilution of the renewable share.
- Note: Analysis does not incorporate AI-specific electricity demand such as from datacenters; model calibrated to GTAP Power 2017 database assumptions.

*Source: IMF staff calculations.*

### Labor reallocation under AI
- Substantial sectoral labor reallocation supports aggregate adjustment:
  - Pharmaceuticals: labor declines by about 2 percent under AI-L and by over 7 percent under AI-H.
  - Labor rises by high-single- to double-digit percentages in chemicals, transport, and certain services under AI-M and AI-H.
- Net effect: capital’s share of income rises strongly while labor income also grows in aggregate.

### Carbon pricing policy scenarios and trade-offs
- Carbon pricing used to offset emissions impact of AI in three scenarios (keeping emissions at baseline) and in a fourth scenario to reduce emissions by 20 percent relative to baseline (without AI).
- Effects of carbon pricing in the model:
  - Raises cost of emissions-intensive activities and induces substitution toward cleaner production.
  - Generates economy-wide price effects and reallocates sectoral composition of output.
  - When combined with AI, climate policy slightly reduces gains from productivity; without AI, carbon pricing mainly raises costs and reallocates resources.
- Mitigation targets in the climate policy scenarios are imposed only on Ireland; climate policies in other regions remain unchanged.

*Source: IMF staff calculations.*

*Italic: Source — IMF staff calculations from chapter 10 of the provided PDF content.*

### 22. Real GDP and price responses reflect the interaction between productivity gains and

### 22. Real GDP and price responses reflect the interaction between productivity gains and carbon costs

### Macro impacts on real GDP and the price index
- When combined with carbon pricing, AI adoption yields real GDP increases ranging from about 2.43 to 9.79 percent, slightly below the corresponding gains in the AI‑only scenarios, indicating a modest efficiency cost from emissions constraints.
- Aggregate price change in combined AI–carbon scenarios remains negative, between −0.15 and −0.87 percent, but rises modestly relative to AI-only outcomes as carbon prices partially offset productivity-driven cost reductions.
- Standalone carbon-pricing scenario (CARB20) outcomes:
  - Real GDP: −0.42 percent.
  - Price index: 0.05 percent increase.
  - Interpretation: higher production costs in the absence of productivity gains.

### Electricity mix, carbon prices, and emissions outcomes
- Renewable share in electricity production by scenario (Percent):
  - Baseline: 40 percent.
  - AIL-CP: 44.3 percent.
  - AIM-CP: 51.1 percent.
  - AIH-CP: 55.6 percent.
  - CARB20: nearly 62 percent.
- Carbon price increments above the existing baseline (USD per ton of CO₂):
  - Offsetting low-AI emissions: about USD 10.6 per ton of CO₂.
  - High AI adoption: USD 45.1 per ton of CO₂.
  - CARB20 (20-percent emissions reduction without AI): USD 66.6 per ton of CO₂.
- Interpretation: increasing marginal abatement costs as emissions constraints tighten; higher carbon prices reorient production toward low-emission technologies but raise prices and may cause modest output losses absent productivity gains.
- Carbon revenues: in the high-AI scenario, carbon revenues exceed those under CARB20 despite the higher carbon price in CARB20 (see Table 7 for specific values).

### Trade impacts: exports, imports, and export prices
- Real exports (percent deviation from baseline) under combined AI–carbon scenarios:
  - AIL-CP: +2.55 percent (Figure 12 summary).
  - AIM-CP: +7.14 percent.
  - AIH-CP: +10.55 percent.
- Export price changes under combined scenarios: fall by 0.28–1.50 percent, reflecting productivity-driven cost reductions partly offset by higher carbon-related input costs.
- CARB20 outcomes:
  - Real exports: −0.71 percent.
  - Export prices: +0.14 percent.
  - Interpretation: mild loss of cost competitiveness as carbon costs raise prices in emissions-intensive activities.
- Bilateral export flows (percent deviation from baseline) — Export table (selected entries):
  - AIL-CP: CHN 2.87; GBR 1.82; IND 2.17; NCM 3.16; REU 2.75; USA 3.05; ROW 2.13.
  - AIM-CP: CHN 8.05; GBR 4.98; IND 6.35; NCM 9.08; REU 7.7; USA 8.56; ROW 5.96.
  - AIH-CP: CHN 11.93; GBR 7.2; IND 9.21; NCM 13.59; REU 11.38; USA 12.76; ROW 8.82.
  - CARB20: CHN 0.34; GBR −1.58; IND −0.05; NCM −0.24; REU −1.01; USA −0.07; ROW −0.56.
- Imports (percent deviation from baseline) — selected entries:
  - AIL-CP: CHN 2.3; GBR 3.9; IND 2.97; NCM 1.69; REU 3.01; USA 4.18; ROW 2.92.
  - AIM-CP: CHN 6.44; GBR 10.92; IND 8.08; NCM 4.23; REU 8.35; USA 11.86; ROW 8.03.
  - AIH-CP: CHN 9.64; GBR 16.16; IND 11.84; NCM 5.76; REU 12.26; USA 17.71; ROW 11.8.
  - CARB20: CHN −0.26; GBR −0.93; IND −0.83; NCM −2.55; REU −0.53; USA −0.47; ROW −1.38.
- Terms of trade move only marginally across scenarios (Table 7: Fisher index values show 1.00–1.01 across scenarios).

### Selected macro and fiscal indicators (Table 7 figures)
- Private Consumption Quantity (Percent deviation from baseline):
  - AIL-CP: 7.04
  - AIM-CP: 19.37
  - AIH-CP: 28.4
  - CARB20: −1.21
- Private Consumption Price:
  - AIL-CP: 0.02
  - AIM-CP: −0.03
  - AIH-CP: −0.15
  - CARB20: 0.62
- Capital Income:
  - AIL-CP: 2.69
  - AIM-CP: 7.16
  - AIH-CP: 10.33
  - CARB20: −0.1
- Labor Income:
  - AIL-CP: 1.22
  - AIM-CP: 3.21
  - AIH-CP: 4.45
  - CARB20: −0.92
- Natural Resources Income:
  - AIL-CP: 14.9
  - AIM-CP: 53.08
  - AIH-CP: 90.98
  - CARB20: −2.52
- Total Import Quantity:
  - AIL-CP: 3.46
  - AIM-CP: 9.66
  - AIH-CP: 14.29
  - CARB20: −0.75
- Total Import Price:
  - AIL-CP: −0.49
  - AIM-CP: −1.48
  - AIH-CP: −2.27
  - CARB20: 0.01
- Terms of Trade (Fisher):
  - AIL-CP: 1.00
  - AIM-CP: 1.01
  - AIH-CP: 1.01
  - CARB20: 1.00
- Carbon Revenues:
  - AIL-CP: 14.71
  - AIM-CP: 41.77
  - AIH-CP: 62.31
  - CARB20: 53.64
- Tax Revenues:
  - AIL-CP: 3.03
  - AIM-CP: 8.23
  - AIH-CP: 11.91
  - CARB20: −2.46

### Sectoral adjustments, factor incomes, and labor reallocation
- Sectoral patterns:
  - Carbon pricing reinforces compositional shifts toward low‑carbon activities: fossil-fuel‑based electricity and other emissions‑intensive sectors contract, while renewables and less carbon‑intensive services expand.
  - In combined AI–carbon scenarios, reallocations occur alongside productivity‑driven growth; in CARB20 without AI, reallocations occur amid broader declines in carbon‑intensive sectors and only limited gains elsewhere.
- Factor incomes:
  - Combined AI–carbon: capital and labor incomes rise, slightly less than in AI-only scenarios; natural-resource income increases strongly (higher rents on constrained resource inputs).
  - CARB20: all factor incomes decline modestly, with largest contraction in natural-resource income.
- Labor movement (Figure 14 highlights):
  - Employment falls sharply in fossil electricity across all climate scenarios.
  - Labor reallocates toward renewable electricity, construction, and market services.
  - In combined AI–carbon scenarios, reallocation occurs within an expanding economy; in CARB20 it reflects adjustment under a mild contraction.

### Policy implications and concluding remarks
- Carbon pricing is necessary to ensure productivity gains do not translate into persistently higher emissions or an unsustainable energy mix; it provides a clear signal redirecting production, trade, and factor allocation toward low-emission activities.
- Complementary investments and policy measures emphasized:
  - Continuing investment in renewable energy capacity.
  - Upgrading grid infrastructure to accommodate rising electricity demand associated with AI-related activity and digitalization.
  - Expanding the sectoral coverage of existing climate policy frameworks and strengthening electricity networks.
  - Facilitating integration of European energy markets including renewables.
- Labor-market and distributional policy recommendations to manage AI-driven structural change:
  - Strengthen active labor‑market policies.
  - Provide AI-specific training and upskilling.
  - Implement skill-matching mechanisms to facilitate reskilling and labor mobility.
- Overall interpretation: well-designed climate policy combined with policies that manage labor reallocation and skills can reconcile Ireland’s productivity-driven growth with decarbonization objectives, enabling a sustainable transition that aligns long-term economic performance with climate commitments.

*Source: IMF staff calculations.*

### Annex III. Table 2. Ireland: Sectoral Real Export

### Annex III. Table 2. Ireland: Sectoral Real Export

### Overview
- Table unit: "Percent deviation from baseline"
- Source: IMF staff calculations.
- Column headings (in order): USTar, EUMSC, EUIND, UST+FT, AI-L, AI-M, AI-H, AIL-CP, AIM-CP, AIH-CP, CARB20, AGF

### Sectoral percent deviations (row format: Sector — USTar / EUMSC / EUIND / UST+FT / AI-L / AI-M / AI-H / AIL-CP / AIM-CP / AIH-CP / CARB20 / AGF)
- USTar — 1.80 / 0.15 / -0.47 / 1.49 / -0.08 / 2.20 / 5.50 / -0.04 / 2.32 / 5.69 / 0.17
- FSH — -0.99 / -0.11 / 0.09 / -1.01 / 0.95 / 2.51 / 3.51 / 1.00 / 2.65 / 3.72 / 0.27
- FBT — -5.63 / -0.10 / 0.73 / -5.03 / 1.36 / 3.93 / 5.75 / 1.20 / 3.51 / 5.15 / -0.86
- OIL — -7.61 / 0.00 / -0.12 / -7.72 / 1.92 / 5.02 / 7.07 / 0.11 / 0.10 / -0.04 / -10.30
- BMT — -0.49 / 0.13 / 0.46 / 0.06 / 3.42 / 8.90 / 12.79 / 1.45 / 3.40 / 4.67 / -9.96
- NMM — 1.23 / 0.14 / 0.60 / 1.92 / 1.22 / 3.37 / 4.70 / 0.60 / 1.64 / 2.16 / -3.64
- CHM — -1.76 / 0.16 / -0.10 / -1.79 / 6.59 / 19.97 / 30.66 / 6.59 / 19.95 / 30.65 / 0.08
- BPH — 11.23 / 0.00 / -0.12 / 11.11 / 0.34 / 0.30 / 0.40 / 0.39 / 0.42 / 0.56 / 0.31
- RPP — -3.41 / 0.78 / 0.24 / -2.55 / -0.39 / 0.38 / 0.47 / -0.20 / 0.90 / 1.23 / 1.14
- PPP — -6.89 / -0.05 / -0.15 / -7.05 / 0.61 / 2.27 / 3.40 / 0.68 / 2.47 / 3.69 / 0.44
- TnD — -0.78 / 0.11 / -0.01 / -0.70 / 3.21 / 8.18 / 12.21 / 3.43 / 8.89 / 13.36 / 1.79
- EFF — -0.43 / 0.16 / 0.10 / -0.19 / 4.63 / 12.64 / 18.20 / -16.37 / -39.22 / -52.06 / -72.84
- ERN — -5.80 / -0.05 / -0.02 / -5.84 / 2.39 / 5.77 / 8.62 / 6.53 / 16.87 / 24.50 / 19.00
- EOt — -3.46 / 0.02 / 0.05 / -3.39 / 2.75 / 6.74 / 9.96 / 7.05 / 18.34 / 26.64 / 19.71
- OXT — -1.79 / -0.09 / 0.28 / -1.58 / 1.67 / 4.51 / 6.46 / 1.58 / 4.28 / 6.13 / -0.51
- TTL — 2.79 / 0.38 / -1.74 / 1.31 / 3.34 / 10.37 / 16.11 / 3.67 / 11.37 / 17.67 / 1.92
- LUM — 2.60 / 0.18 / -0.35 / 2.43 / -0.33 / -1.63 / -3.11 / -0.41 / -1.79 / -3.30 / -0.31
- FMP — -1.60 / 0.71 / -0.17 / -1.08 / 2.48 / 6.81 / 9.64 / 3.03 / 8.39 / 12.01 / 3.02
- MVH — 0.39 / 0.48 / -0.12 / 0.71 / 3.38 / 9.01 / 13.13 / 3.59 / 9.62 / 14.06 / 1.20
- OTN — 8.69 / -0.13 / 0.26 / 8.75 / 2.30 / 5.90 / 8.37 / 2.73 / 7.16 / 10.29 / 2.57
- CEO — -12.48 / 0.01 / 0.03 / -12.38 / 2.51 / 6.37 / 8.91 / 2.76 / 7.07 / 9.93 / 1.45
- EEQ — -1.30 / 0.45 / 0.73 / -0.34 / -0.03 / -1.38 / -2.43 / 0.36 / -0.33 / -0.94 / 2.23
- OME — -12.52 / 1.14 / 0.98 / -10.41 / -1.27 / -4.60 / -6.48 / -0.87 / -3.54 / -4.99 / 2.33
- OMF — -18.62 / 0.03 / 0.98 / -17.38 / -0.93 / -3.01 / -4.73 / -0.45 / -1.73 / -2.91 / 2.74
- ATP — -0.36 / -0.02 / 0.17 / -0.21 / 2.22 / 6.05 / 8.73 / -2.90 / -7.87 / -11.41 / -26.72
- WTP — -3.03 / 0.20 / 0.12 / -2.72 / 2.10 / 5.48 / 7.80 / 0.04 / -0.23 / -0.57 / -11.28
- OTP — 1.17 / 0.01 / 0.01 / 1.17 / 3.07 / 8.29 / 11.88 / 1.06 / 2.52 / 3.23 / -11.40
- AFS — 2.76 / -0.04 / -0.14 / 2.57 / 3.45 / 9.28 / 13.55 / 3.57 / 9.63 / 14.09 / 0.59
- WHS — -0.36 / 0.01 / -0.02 / -0.38 / 3.15 / 8.45 / 12.17 / 2.84 / 7.58 / 10.89 / -1.82
- CNS — 0.81 / -0.04 / -0.12 / 0.65 / 0.85 / 2.41 / 3.49 / 1.01 / 2.87 / 4.16 / 0.89
- OSG — 2.54 / -0.09 / -0.14 / 2.31 / 0.63 / 1.59 / 2.32 / 0.90 / 2.35 / 3.43 / 1.51
- EDU — 3.59 / -0.08 / -0.19 / 3.31 / 1.76 / 4.70 / 6.80 / 2.11 / 5.68 / 8.27 / 1.89
- HHT — 3.68 / -0.05 / -0.11 / 3.52 / 1.86 / 4.87 / 7.15 / 2.15 / 5.71 / 8.40 / 1.62
- WTR — 3.12 / 0.00 / -0.13 / 2.97 / 2.52 / 6.65 / 9.51 / 2.72 / 7.23 / 10.38 / 1.12
- TRD — -1.29 / -0.05 / -0.05 / -1.39 / 3.80 / 10.38 / 15.08 / 3.89 / 10.60 / 15.40 / 0.38
- CMN — -1.81 / 0.03 / -0.05 / -1.83 / 2.60 / 7.25 / 10.46 / 2.69 / 7.49 / 10.80 / 0.47
- FIN — 1.31 / -0.06 / -0.10 / 1.16 / 3.91 / 10.77 / 15.70 / 4.14 / 11.43 / 16.68 / 1.24
- REA — -2.31 / -0.01 / 0.01 / -2.31 / 4.66 / 12.51 / 18.12 / 4.73 / 12.71 / 18.41 / 0.37
- OBS — 1.30 / -0.09 / -0.12 / 1.10 / 1.71 / 4.88 / 7.07 / 1.85 / 5.23 / 7.58 / 0.71
- ROS — 1.02 / -0.02 / -0.06 / 0.94 / 3.47 / 9.39 / 13.65 / 3.51 / 9.50 / 13.83 / 0.14

*Source: IMF staff calculations.*

---


_Source: https://www.imf.org/-/media/files/publications/cr/2026/english/1irlea2026002.pdf_