Amid all the justified concern about the economic outlook due to the conflict in the Gulf, the latest figures confirm that the Irish economy continued to grow strongly up to the end of last year. This is, of course, a backward-looking indicator, but it does show that growth had more momentum than expected towards the end of 2025.
This provides some leeway to combat the uncertainties which lie ahead. Unfortunately, the threat from higher energy prices is now starting to look more concerning, though much depends on the duration of the Gulf conflict.
The headline economic figures from the Central Statistics Office (CSO) were, as ever, distorted by multinational accounting. But factoring this out, modified domestic demand – a reasonable measure of activity – was up by almost 5 per cent last year, after a pick-up in the final quarter. Consumer spending grew by almost 3 per cent and there was a welcome increase in investment, notably in house building.
There are, of course, dangers now ahead. Late on Friday oil and gas prices were on the rise again. Higher energy prices could translate into a rise in inflation and affect international and Irish growth. The uncertain duration of the conflict makes this impossible to forecast with any certainty. For much of last week, nervous financial markets had still indicated a hope among investors that the war will not go on too long. But this is now being questioned.
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Meanwhile the latest data on the exchequer position in Ireland, contained in the February returns, showed that income tax and VAT remained strong. Corporation tax is running below 2025 levels, but the more significant months for these payments lie ahead. With Government spending continuing to rise strongly , Ireland remains ever more reliant on a few big multinationals for a large chunk of its revenue.
The uncertain outlook poses challenges to the Government on a number of fronts. It may have to respond to higher energy prices, depending on how the Middle East situation develops. Higher inflation would bring challenges to households and businesses. And if the financial markets are hit hard, this could also affect the real economy.
The correct response is caution in managing the public finances and urgency in delivering the policy agenda which the Government has set out, particularly in infrastructure and housing. Ireland is already a high cost country and another bout of inflation could further damage competitiveness and hurt households.
The Coalition can hope this does not happen, but it needs to be ready to deal with a range of possible outcomes – and to ensure that whatever happens its core investment strategy remains on track. A tricky test of economic management and some tough choices now lie ahead
