Ireland would suffer more severe consequences than other countries if the so-called AI (artificial intelligence) bubble in the US were to burst, the Economic and Social Research Institute (ESRI) has warned.
The think tank also cautioned that housing completions next year are again likely to come in below Government targets in its latest quarterly bulletin.
“This is a risk [related to AI which] we feel is larger for the Irish economy than for other economies outside the US,” the institute’s Conor O’Toole said.
“What we’re seeing in the US is a major increase in investment expenditure related to AI,” he said. “That isn’t just in IP [intellectual property] or the large language models but in the hardware, the data-supporting infrastructure and the energy provision around running the AI economy,” Mr O’Toole said.
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“There’s a lot of debate in the US about the extent to which that’s a bubble and what the consequences would be if that bubble was to unwind,” he said.
US firms have collectively invested over $350 billion in AI technology in the past year alone while most of the uptick in US stock markets is being driven by just seven large tech stocks.
If these firms were to suffer a sudden loss in profitability, that would impact their global operations many of which are located in Ireland, he said.
“This could affect their employment here, their output here and it could also affect the corporation tax receipts that come from these firms,” he said.
Mr O’Toole also highlighted a separate risk for Ireland related to the shift to the AI economy which, he said, could see a downturn in employment levels across the tech sector here.
Housing
In its latest quarterly assessment of the economy, the think tank warned the State’s housing output would remain well below the Government’s 50,000 target for at least the next two years.
While there was a jump in new home completions in the second quarter of this year, when 9,000 homes were delivered, this has subsequently levelled off, it said.
Based on three quarters of data, it forecast completions would be in the region of 35,000 this year and, based on the continued slowdown in commencements, about 36,000 next year.
This would mean “another year when housing output will lag estimates of need”, it said.
The Government is targeting an annual housing output of 50,000 units, with 300,000 units to be delivered over the next five years. But a sharp slowdown in commencements has placed a question mark over that target.
Rent pressure
A special article contained in the bulletin detailed the rent pressure faced by sitting tenants compared to those taking on new tenancies.
For sitting tenants, the average increase nationally in the 12 months to the first quarter of this year was 2.2 per cent.
Increases ranged from 4 per cent to 5.1 per cent in counties Kerry, Roscommon, Leitrim, Longford, Cavan and Donegal between the second quarter of 2024 and the first quarter of this year compared with just 1.1 per cent in Dublin, the ESRI found.
But for those moving, properties in Kerry, Leitrim, Longford, Cavan, Monaghan, Donegal and Tipperary recorded rent hikes of 14 per cent to 18.3 per cent, versus 2.3 per cent in Dublin.
While most sitting tenants face minimal rental inflation, those facing eviction or seeking new tenancies faced paying “much higher rents”, it said.
Overall, the ESRI said the Irish economy was continuing to perform “positively” as evidenced by the growth in consumption and tax receipts.
“However, there is evidence of a slight labour market softening, with employment growth likely to continue but at a slower pace,” it said.
It forecast the economy would grow by 4 per cent this year in terms of modified domestic demand (MDD) – a metric that attempts to strip out the distorting effect of multinationals in the Republic – on the back of higher levels of IP investment in the third quarter, and by 2.1 per cent next year.
In terms of traditional GDP (gross domestic product), it is expected to grow by 13.1 per cent this year before contracting by 5.7 per cent next year, a reflection of the volatility in multinational exports triggered by US tariffs.
