Ireland’s GDP is expected to decline by 0.5% in 2024, mainly due to a contraction in the multinational sector in the first half of the year. Economic activity is projected to rebound with growth of 4.0% in 2025 and 3.6% in 2026 supported by a strong labour market, low headline inflation and favourable external environment. Headline inflation is set to remain low over the forecast horizon. Public finances are forecast to normalise after further positive surprises in revenues and strong increases in expenditure.
| Indicators | 2024 | 2025 | 2026 |
|---|---|---|---|
| GDP growth (%, yoy) | -0,5 | 4,0 | 3,6 |
| Inflation (%, yoy) | 1,4 | 1,9 | 1,8 |
| Unemployment (%) | 4,4 | 4,4 | 4,5 |
| General government balance (% of GDP) | 4,4 | 1,4 | 1,3 |
| Gross public debt (% of GDP) | 41,6 | 38,3 | 36,8 |
| Current account balance (% of GDP) | 13,6 | 9,7 | 9,8 |
Economic activity set to contract in 2024 before picking up
After a decline of 5.5% in 2023, Ireland’s real GDP contracted further in the first half of 2024, mainly reflecting ongoing volatility in the multinational-dominated sectors. In contrast, modified domestic demand, which better reflects the underlying domestic economic activity in Ireland, increased by 1.9% y-o-y during the same period, supported by a strong labour market. Preliminary GDP estimates indicate that the economy grew in the third quarter of 2024, expanding by 2.0% q-o-q.
The combination of steady employment growth, real wage growth and government-support measures is expected to boost households’ real disposable incomes, underpinning continued consumption growth over the forecast horizon.
Headline investment declined sharply in the first half of 2024, largely due to intellectual property exports in the second quarter of the year. Modified investment, which excludes the volatile intangible and aircraft leasing components, increased marginally during the same period. Looking forward, improving financial conditions and the government’s commitment to increasing investment point to a positive outlook for modified investment in 2025 and 2026. Headline investment figures incorporate technical assumptions that intellectual property investment will return to levels similar to those of the past years, though this projection carries considerable uncertainty.
Irish exports rebounded in the first half of 2024, led by a return to growth in pharmaceutical trade and continued strength in service exports, even when excluding intellectual property-related activities. Looking ahead, exports are expected to contribute positively to economic growth, supported by a favourable external environment and continued growth in key sectors such as pharmaceuticals and computer services.
Overall, GDP is expected to decline by 0.5% in 2024 and grow by 4.0% and 3.6% in 2025 and 2026, respectively. Modified domestic demand is set to expand by 2.7% in 2024, 2.8% in 2025 and 3.0% in 2026.
Labour market continues to be tight
Employment remained strong in the first half of 2024, supported by an increase in the labour supply, largely due to high net inward migration and increased female labour market participation. The unemployment rate remained stable at 4.4% in the first half of 2024, and is expected to stay low, averaging 4.4% over the forecast horizon, due to the still tight labour market. Further employment growth is anticipated in the remainder of 2024 and into 2025 and 2026, albeit at a more moderate pace, reflecting the continued expected expansion in the domestic economy.
Inflation expected to remain low
HICP inflation eased significantly in 2024, reaching 0.0% in September, largely driven by lower energy and non-energy industrial goods inflation. It is expected to remain low, with headline inflation forecast to reach 1.4%, in 2024, 1.9% in 2025 and 1.8% in 2026. However, underlying price pressures remained strong and wage growth is expected to keep core inflation elevated. As a result, HICP inflation excluding energy and food is projected to stay above the headline rate.
Public finances are set to remain solid
Ireland’s general government budget is projected to register a surplus of 4.4% of GDP in 2024. A large share (2.7 pps) of it is driven by a one-off in revenue due to the EU Court of Justice’s ruling of 10 September 2024 concerning tax ruling relating to two Apple group companies.
In 2025, the surplus is forecast to recede to 1.4% of GDP as revenue growth is projected to slow down in the absence of one-off revenue such as that seen in 2024. While expenditure growth is set to moderate as from 2024, it is nonetheless expected to remain robust in 2025. Based on the national budget for 2025, strong increases are assumed in public sector pay, investment and social transfers to support living standards and the provision of public goods and services.
In 2026, the budget surplus is projected to be 1.3% of GDP, as revenue is projected to normalise while higher levels of expenditure are expected to become entrenched.
The fiscal stance is set to remain expansionary in 2024, though less than in 2023. It is projected to contract further in 2025 before becoming neutral in 2026.
The general government debt-to-GDP ratio is forecast to decrease from 41.6% in 2024 to 38.3% in 2025, and to 36.8% in 2026. The debt ratio is set to fall more slowly than if the budget surpluses were translated mechanically into debt reduction, also due to transfers to the newly-established Future Ireland Fund and Infrastructure, Climate and Nature Fund, and accrual adjustments.