The Irish economy is in fine health but how stable is that current status? EY has forecast that GDP will grow by 9 per cent this year and 3.3 per cent in 2026. Modified domestic demand is expected to grow by 3.2 per cent in 2025 and 2.6 per cent next year.
The scale of this growth is normal nowadays but that happy state of affairs is a relatively recent phenomenon.
“For much of the period from the 1850s to 1980s, Ireland didn’t have an economic model,” says Prof Ronan Lyons of Trinity College Dublin. “Since the 1990s, it has been a launch pad for North American businesses into the European consumer market.
“We’ve been in a phase of pretty exceptional economic growth for 12 or 13 years. Some of that was rebound after the crash but the last 10 years is a case of Ireland finding an economic model that improves living standards and creates jobs.”
READ MORE
The continued nature of this growth comes down to the strong fundamentals at the heart of Ireland’s economic model. In essence, the basics are prioritised.
“Labour, capital and productivity, the latter being the efficiency of interactions between labour and capital, or a proxy for technological progress, have been driving Ireland’s economic growth,” says Kevin Timoney, Davy’s chief economist.
“This has been facilitated by an increasingly well-educated workforce, an elastic and high-skill supply of labour driving strong population growth and favourable exposures to high-growth-potential sectors such as ICT, pharma and medtech.”
Added to this, according to Timoney, is the strengthening of the national balance sheet which has been aided by corporation tax income and deleveraging across the economy.
“None of this has come as a surprise to us; we have consistently forecast a sustained period of strong economic growth this decade since we restarted our Irish economy coverage in June 2024,” he says.
“We expected 4.5 per cent real national income last year, and the result slightly beat that at 4.8 per cent.”
In the near-term, the economic outlook remains rosy. If things keep moving as they are, there’s no reason to expect that to dramatically change. There’s just the small problem that things rarely maintain the same consistent pace for too long.
There may not be an economic storm forecast but the clouds in the near distance aren’t exactly enticing either.
“The main risk for the Irish economy is the growing pain and inability to add to the capacity of the economy at the speed required to meet the underlying dynamics. You can point across a range of metrics. There’s a whole range just for where people stay at night, then there’s school space, college space and hospital space, as well as rail infrastructure,” says Lyons.
Finbarr Griffin, head of investment banking at Goodbody, says these constraints put Ireland in a potentially vulnerable position.
“Ireland’s Achilles’ heel remains housing and infrastructure, despite record capital allocations under the National Development Plan, €19.1 billion in 2026 alone. Planning delays, such as the recent judicial review on MetroLink, highlight the challenge,” he says.
“The new Planning and Development Act promises to streamline processes, but its effectiveness is still untested. Apartment delivery has been challenging, and while recent Government legislation shows promise, it too must pass through without judicial review. Add to that a shortage of zoned and serviced land, and you see why this is a critical vulnerability.”
Of course, there are plenty of factors emanating from outside Ireland that could also impact continued growth. There are risks ahead that will test the economy’s competitiveness and fiscal resilience. The combination of the State’s own constraints and shifts in policy elsewhere could prove problematic.
“The big question is the extent to which there is friction between the US and the Eurozone. In many ways, Ireland is insulated from trade tariffs for everything other than pharmaceuticals. That pharmaceuticals bit and other sectors are quite exposed,” says Lyons.
The EU-US trade deal, resulting in a 15 per cent tariff cap, eased immediate fears around trade. Yet risks remain – the Section 232 investigation in the US into how imports, including pharma, impact US security is the most obvious. Beyond that, the broader agenda of the current US administration could add further complications.
“Perhaps a bigger risk, in our view, is the precedent set by recent US deals with Pfizer and AstraZeneca, with three-year tariff moratoriums in exchange for big US investment commitments,” says Griffin.
“If that trend continues, incremental investment could shift stateside, reducing Ireland’s share over the next few years. The extent of such a shift will determine the knock-on effects on exports, employment and corporate tax receipts.”
While a threat, these types of economic shifts take time to unravel so there’s some reason to refrain from sounding the alarm just yet.
“Ireland is reasonably well insulated because the clusters that have emerged in the Irish economy typically don’t disappear overnight. That’s at an employment and trading level,” says Lyons.
There remains, however, one clear vulnerability: the reliance on corporation tax. The Irish Fiscal Advisory Council said in November that these receipts make up a quarter of the State’s tax revenue. That’s a vulnerability, as public finances are somewhat built on that foundation, and the reliance has increased in recent years.
“If that were to go into reverse, there would be a large hole in public finances and the mood music would become very different around all sorts of services,” says Lyons.
