The good news is that Ireland’s economy continues to outperform its peers internationally despite the uncertain global backdrop.
The bad news is that there is unlikely to be any let-up in the current cost-of-living squeeze, with energy and housing costs likely to remain high for the foreseeable future.
Most forecasters are predicting the Irish economy will grow by 2-3 per cent this year and next, healthy in the context of Europe, as stronger-than-anticipated business investment compensates for a moderate slowdown in household consumption.
As we approach Budget 2027, the public finances are awash with cash – and not just from corporate tax – income tax and VAT receipts are at record levels, reflecting historically high levels of employment.
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The Government’s strong fiscal position, however, comes with a moral hazard: spending has ballooned. Ministers can claim to be keeping a lid on it, but the figures speak for themselves.
General Government spending has jumped by 54 per cent since 2019, from €86.9 billion to €133.8 billion last year.
Budgetary overruns have averaged more than €2 billion per year for a decade, the Irish Fiscal Advisory Council (Ifac) said in a recent pre-budget statement, noting that the last time spending was at, or below, budgeted levels was in 2013.
Part of this can be put down to the draw on public services from a bigger population, which is also ageing, and unforeseen factors such as inflation, but much of it reflects what the council says is “poor expenditure management”.
In a bid to rein in spending, the Government has adopted a new spending framework which pledges to keep the annual lift in expenditure inside a 6 per cent threshold.
Budget 2027 will be a test of that new resolve.
Many saw the Government’s planned ending of excise duty cuts in September as a line in the sand, but they were extended – at the last minute – for two additional months, with Minister for Finance Simon Harris insisting the move wouldn’t affect his budgetary arithmetic.
Harris has signalled that overall spending will be increased by €7 billion in the budget comprising €5.9 billion in additional day-to-day spending and €1.1 billion in capital expenditure on infrastructure such as energy, water and transport.
Whether the Government sticks to that remains to be seen. There will also be a €1.5 billion tax package aimed at cushioning taxpayers from the effects of inflation.
“Given the economy is in such a strong position, it does not require support from budgetary policy,” Ifac’s chief economist Niall Conroy warns. “A large package of measures in Budget 2027 would not be appropriate. It would likely fuel further inflation,” he says.
“Increases in spending (net of tax changes) should grow no faster than the sustainable growth rate of the economy. The nominal sustainable growth rate of the economy is estimated to be around 4.5-5 per cent.”
He adds: “The actual package of measures is likely to be much larger than what is announced on budget day. This is because spending overruns have become routine over the last decade.
“The Government is planning to moderate spending growth in the years ahead. But there have been plans to do so for some time, which are yet to materialise.”
Away from the State’s finances, households remained burdened by an acute cost-of-living crisis compounded by some of the highest energy and electricity prices in Europe and a seemingly never-ending housing crisis.
Having averaged just over 2 per cent in 2025, inflation in Ireland increased, on a year-on-year basis, to 3.6 per cent in April this year.
The rise was largely driven by higher energy prices arising from the conflict in the Middle East, with double-digit increases in energy prices contributing more than one percentage point to headline inflation in April and May. Since May, headline inflation has moderated slightly to stand at 3.1 per cent.
The Central Bank’s director of economics and statistics, Robert Kelly, says elevated inflation will weigh on the real incomes of households in 2026.
“Based on our June projections, real gross disposable income per household was forecast to decline by 1 per cent in 2026 but to recover thereafter, increasing at an annual average rate of 0.7 per cent in 2027 and 2028,” he says.
“However, the conflict in the Middle East remains unresolved and recent weeks have seen renewed upward pressure on international energy prices.
“This creates significant uncertainty around the projections for inflation but the pass-through from the rise in international commodity prices already observed and the spillover to other commodities such as food is likely to keep upward pressure on inflation during the remainder of 2026 and into 2027, with the headline rate remaining above that recorded in 2025.”
An escalation of the war in the Middle East could increase inflation well above the rate projected in the bank’s forecast, Kelly warns.
US tariffs is one area in which uncertainty seems to have waned; relative to the position we found ourselves in last year, the tariff threat has dissipated.
This is largely because of the high concentration of pharma and IT within our export mix. Both sectors are high margin and currently outside of Donald Trump’s tariff dragnet.
And with the Trump administration increasingly enmeshed in economic challenges at home and foreign policy battles abroad, many commentators think his tariff strategy will be shuffled down the agenda.
Changes in US corporate tax or industrial policy could affect the location of intangible assets and production, with knock-on effects for goods and services trade, investment and corporation tax receipts.
But that threat is nothing new.
And the pace of multinational investment into Ireland shows no sign of stopping.
The IDA supported a record 323 investments, with the potential to create 15,300 new jobs in 2025, a year that was dominated by US tariff threats and a slowdown global demand.
The number of IDA-led investments was up 38 per cent on the previous year and included 78 “new-name” investments, which the agency said highlighted Ireland’s continued attraction for first-time investors.
“This is a stellar result for Ireland”, with so many countries “trying to eat our lunch when it comes to foreign direct investment”, IDA Ireland chairman Feargal O’Rourke said at the agency’s recent half-year results.
While it is important to stay vigilant and “be paranoid ... it is [also] important to step back and smell the roses a bit”, he said. “We’re continuing to win our unfair share of foreign direct investment.”
The new minimum global rate of corporation tax combined with the expiration of allowances for domiciling intellectual property (IP) here is expected to see annual revenue from the business tax grow towards €40 billion. The Department of Finance is expecting €34-35 billion this year.
This extraordinary tax take continues to shield Ireland from the high debt levels and fiscal imperatives facing other countries.
Keeping the flow of foreign direct investment (FDI) depends on expanding the country’s carrying capacity.
Ireland’s housing crisis is part of a wider infrastructural deficit that encompasses energy, water, transport and childcare.
Failing to address this challenge is perhaps the biggest threat to the economic outlook.
The Government has ramped up its capital budget in recent years, but the public are getting restless at the meagre results and the State’s seeming difficulty in getting big projects across the line and on budget.
Demographic pressures and climate transition costs also represent a ticking time bomb for the exchequer, one that we must start defusing.
