Bank of Ireland has slashed its growth forecasts for the year as the Iran war puts an “unwelcome squeeze” on household income.
The spike in energy prices would not, however, trigger a recession, it said, with the economy expected to show the same resilience it exhibited during the pandemic and the energy shock that followed Russia’s invasion of Ukraine four years ago.
In its latest quarterly bulletin, the bank predicted the economy would grow by 1.6 per cent this year in gross domestic product (GDP) terms, down from a previous forecast of 2.8 per cent, and by 3.6 per cent next year.
“This downgrade reflects the unwinding of temporary factors that boosted exports in 2025 (front-running of US tariffs) but also the recent uncertainty posed by events in the Middle East,” it said.
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Earlier this month KPMG also lowered its economic growth projections for the Republic by 0.5 per cent.
The Big Four accounting firm said the external environment had “deteriorated materially” since the start of the year, and growth for the full year may be in the 2-2.5 per cent range, down from an expectation of 2.5-3 per cent at the beginning of 2026.
The bank warned that inflation would average 3.3 per cent this year, restraining consumer spending and growth in the process.
The pickup in inflation in March – it rose to 3.6 per cent – reflected Ireland’s exposure to the 63 per cent rise in home-heating oil prices.
It noted that cuts to excise duty on fuel reduced inflation (as measured by Harmonised Index of Consumer Prices) by 0.6 per cent “but these are scheduled to be reversed in August”.
A key uncertainty, the bank said, was the timing of any increase in household electricity and gas bills. Providers have so far held off from announcing price hikes in the face of the jump in wholesale energy prices.
On the upside, it said oil prices of $100 a barrel were not sufficient to push Ireland into recession.
Irish households are “well placed to cope in aggregate”, the bank said while noting the savings ratio remained high at 14 per cent in 2025 as household debt continued to fall.
The bank said the Government expected a €9 billion surplus this year that “provides safety buffer” for the public finances should further energy supports be required.
“While the recent rise in oil and energy prices towards $100 per barrel represents an unwelcome squeeze on household real incomes and consumer spending, the Irish economy is expected to show the same resilience demonstrated during Brexit, the Covid‑19 pandemic and the energy shock that followed Russia’s invasion of Ukraine," Bank of Ireland chief economist Conall Mac Coille said.
“There are enormous risks – 20 per cent of global oil supply remains cut off. ECB president Christine Lagarde has warned of a cliff-edge as the last ships that left the Middle East before the war finally reach their ports.
“Financial Stability Board chair Andrew Bailey has cautioned a loss of investor confidence reminiscent of the GFC [global financial crisis] could emerge if higher oil prices put pressure on bonds, stretched AI-equity valuations and private credit markets.”
