Irish economy continues to grow robustly but with notable headwinds
Ireland’s positive economic performance continues with growth in consumption and tax receipts, according to the ESRI’s Quarterly Economic Commentary Forecast summary – Winter 2025. However, there is evidence of a slight labour market softening, with employment growth likely to continue but at a slower pace.
The ESRI’s forecast for Modified Domestic Demand (MDD) is for growth of 4.0 per cent in 2025 and 2.1 per cent in 2026. The downward trajectory for next year in the MDD figures represents base effects from an elevated level this year rather than an underlying slowdown. This was caused by high IP investments in the modified data in Q3 2025 that we do not anticipate being repeated.
For GDP, the ESRI expects it to grow by 13.1 per cent this year and to fall back by 5.7 per cent next year. The reason for the drop off next year is twofold. First, unusually high export figures for 2025, partly driven by tariff anticipation, are unlikely to be repeated in 2026. Second, again, the ESRI does not anticipate the particularly strong intangible investment figures for 2025 to be repeated in 2026, leading to a decline in investment next year.
In a Special Article published with the Commentary, the Tax, Welfare and Pensions team at the ESRI examines the distributional impact of Budget 2026. Compared to a tax-welfare system indexed by price growth in 2026, the average household is estimated to see a decline of 1.3 per cent in its equivalised disposable income next year.
Housing output in the third quarter saw 9,235 completions, supporting an unchanged forecast of approximately 35,000 completions for 2025. The continued slowdown in commencements in 2025 causes the ESRI to maintain its forecast for 2026 to just under 36,000 units. In a box to the Commentary, Slaymaker and Banahan present evidence on property-specific rental price changes. Most sitting tenants face minimal rental inflation. By contrast, as average rent levels rise at a faster rate over time, driven by property churn, those facing eviction or seeking new tenancies do so in a market with limited supply and at much higher rents than sitting tenants.
In a separate box to the Commentary, the ESRI Climate team examines trends in economic activity, emissions and energy consumption collectively to investigate whether decoupling between economic growth and emissions is occurring. Findings vary by sector, with some evidence of decoupling in the industry sector but limited evidence in the transport sector.
In the ESRI’s assessment, it discuss the outlook for Ireland’s international trading climate and the strong concerns voiced by the ESRI and others around the fiscal stance. However, the ESRI welcomes the long-term perspective and the focus on unlocking infrastructure delivery that has been a feature of recent government publications.
Commenting on the report, author Alan Barrett of the ESRI stated: “Although the earlier part of 2025 was dominated by uncertainty created by the Trump Administration’s policies on tariffs, the global economy has shown resilience this year and Ireland has benefited. The ongoing strong performance of the Irish economy is to be welcomed. However, Budget 2026 was a missed opportunity to set the public finances on a trajectory that is less vulnerable to any weakening in windfall corporate tax revenues.”
Commenting on the report, author Conor O’Toole of the ESRI stated: “Ireland’s economy is expected to continue to perform robustly into 2026 but with a moderate slowdown in the labour market. Downside risks remain, with vulnerabilities relating to our exposure to any downturn in activity from multinational corporations through tax and employment channels.”
“On the housing front, we expect housing output to remain below underlying demand for 2026. Increasing housing production will be a challenge, and structural reforms, such as those outlined in the recent Accelerating Infrastructure Taskforce report, should be implemented to deal with bottlenecks in the system.”
