Ireland’s GDP is forecast to decline in 2026, largely reflecting the base effect of frontloading of pharmaceutical exports in 2025, before stabilising and growing again in 2027. Growth in domestically driven economic activity is expected to continue. However, the energy price shock is expected to push inflation higher, weighing on real income and growth. The outlook for public finances is positive but marked by significant risks to corporation tax revenues.
| Indicators | 2025 | 2026 | 2027 |
|---|---|---|---|
| GDP growth (%, yoy) | 12.3 | -1.2 | 3.4 |
| Inflation (%, yoy) | 2.1 | 3.5 | 2.6 |
| Unemployment (%) | 4.7 | 4.8 | 4.9 |
| General government balance (% of GDP) | 1.8 | 1.4 | 1.2 |
| Gross public debt (% of GDP) | 32.9 | 32.4 | 31.6 |
| Current account balance (% of GDP) | 8.1 | 7.9 | 7.3 |
GDP volatility persists while the domestic economy remains resilient
Real GDP increased at an exceptional rate of 12.3% in 2025, primarily driven by strong pharmaceutical exports. This likely reflects front-loaded shipments in anticipation of US tariffs and strong global demand for weight-loss related products produced in Ireland. The domestic economy also performed strongly, supported by increases in modified investment (which excludes the more volatile intangible and aircraft leasing components) and private consumption.
Following the surge seen in 2025, GDP is projected to contract by 1.2% in 2026, before growing again by 3.4% in 2027. Modified domestic demand—a more reliable indicator of domestic economic activity in Ireland—is set to expand by 2.8% in 2026 and 3.0% in 2027.
Private consumption is expected to moderate as elevated inflation weighs on households’ purchasing power. However, accumulated savings and a resilient labour market are expected to support household spending over the forecast horizon. Modified investment is projected to keep growing, supported by strong momentum in 2025 and the government’s National Development Plan. However, elevated uncertainty is set to weigh on investment growth. Headline investment figures assume that volatile R&D-related intellectual property investment will remain broadly unchanged in the coming years, though past experience shows that this projection remains highly uncertain.
While exports are expected to be negatively impacted by the base effects of the frontloading in 2025, solid global demand for pharmaceuticals produced in Ireland, along with strong computer services exports, are expected to contribute positively to growth in the forecast horizon. Nonetheless, Ireland’s high concentration of activity in a few multinational-dominated sectors leaves the economy vulnerable to firm and sector-specific shocks and adverse international developments.
The labour market remains strong but shows signs of moderation
Employment continued to grow in 2025, supported by an increasing labour supply. However, the pace of employment growth has moderated, while the unemployment rate has edged up slightly, suggesting some easing in labour market conditions. Employment is set to continue expanding at a more moderate pace in 2026 and 2027, in line with the expected expansion of the domestic economy.
High energy prices drive up inflation
HICP inflation reached 2.1% in 2025, with an uptick in the second half of the year. Looking ahead, higher global energy prices, combined with Ireland’s high reliance on energy imports, are expected to put upward pressure on inflation. Recent inflation readings already reflect the pass-through of higher wholesale energy prices, and further transmission is expected as hedged positions unwind, keeping inflation elevated. Higher energy prices are also expected to pass through to non-energy goods and services, though with a delay. Energy support measures directly affecting retail prices are expected to partially offset the impact of the shock during the periods they are in effect. Overall, headline inflation is forecast to reach 3.5% in 2026 before moderating to 2.6% in 2027, as energy prices are expected to gradually drop.
Budget surpluses driven by buoyant corporate tax
Ireland's general government budget registered a surplus of 1.8% of GDP in 2025, primarily due to strong corporate tax receipts. However, revenue from other tax categories also performed well in line with the positive domestic economic developments.
In 2026, the budget surplus is forecast to decline to 1.4% of GDP. Indirect tax receipts are set to grow on the back of strong domestic activity and higher prices, though this will be partially offset by a range of reduced VAT rates entering into force in 2026. Direct taxes are expected to benefit from the Qualified Domestic Top-up Tax boosting corporate tax receipts by around EUR 3 billion from 2026 onwards, and from solid growth in labour tax revenue thanks to wage growth and the non-indexation of tax brackets in 2026. Expenditure growth, however, is forecast to outpace revenue growth, reflecting additional spending on energy support measures and large projected increases in government consumption, social transfers and capital investment, the latter supported by the revised National Development Plan. In 2027, the surplus is forecast to further decline to 1.2% of GDP based on unchanged policies. Spending growth is set to remain high and continue to outpace revenue growth, even after the assumed phasing out of all energy support measures.
The general government debt-to-GDP ratio is forecast to decrease from 32.9% in 2025 to 32.4% in 2026 and to 31.6% in 2027. The debt ratio is expected to fall more gradually than implied by headline budget surpluses, mainly reflecting transfers to the Future Ireland Fund and the Infrastructure, Climate and Nature Fund.
Ireland’s public finances remain vulnerable to changes in US trade and tax policies, as well as shifts in the international tax environment, due to the significant concentration of tax revenues in a handful of companies in the pharmaceutical and ICT sectors. This continues to present a major risk.