OECD Economic Outlook, Volume 2025 Issue 2

Ireland

Projected to expand by 10.2% in 2025, driven by front-loaded pharmaceutical exports ahead of US tariffs, real GDP growth will slow to 2.1% in 2026, reflecting the unwinding of these effects and higher trade barriers, before strengthening to 2.8% in 2027, as uncertainty eases somewhat. Supported by continued, though moderating job creation, domestic demand, net of the most volatile multinational activities, is projected to grow by 3.7% in 2025, 2.3% in 2026 and 2.6% in 2027.

A binding domestic fiscal rule will be key to ensure sustainable public finances over the medium-term. Tax receipts are projected to rise but will remain vulnerable to sudden reversals, were additional tariffs to reduce large multinationals’ earnings. Enhancing SMEs’ access to innovation and technology-adoption support, together with eased restrictions in legal services, could strengthen productivity growth and reduce cost pressures on businesses.

Tariff-related uncertainties persist

Heavy front-loading of goods exports, largely pharmaceuticals, drove strong GDP growth in the first half of 2025, while preliminary – and historically volatile – estimates suggest a marginal decline in the third quarter. Despite high uncertainty, high-frequency data point to resilient new business growth in recent months, although momentum was more moderate in manufacturing. With unemployment steady around 5.0% since June, the labour market remains relatively tight, even though trends in job creation and wage growth are easing. Retail sales and card payments suggest a mild moderation in consumer spending despite solid real income gains. The re-emergence of price pressures for food, energy, and some service components has pushed both headline and core harmonised consumer price inflation above 2.5%.

Ireland

1. Unemployment rate of 15-74 year-olds, seasonally adjusted.

2. Annual percentage change in the number of employees, seasonally adjusted. Based on administrative data.

3. Estimates as of April of each year.

Source: Central Statistics Office.

Statlink

Ireland: Demand, output and prices

Statlink

Amid significant volatility, and large export front-loading in early 2025, the effects of changes in US tariffs are difficult to gauge. Pharmaceutical exports to the United States declined from March to August, partly offset by a rebalancing towards EU markets, but spiked up again in September. Meanwhile, computer services exports have remained robust. Pharmaceutical exports to the US remain exempt from higher tariffs and are expected to stay relatively resilient, even if pharmaceutical companies were to lose their exemption, given the sector’s high margins and low price elasticities.

Fiscal policy is expansionary

Ireland’s solid headline fiscal position masks growing underlying deficits once windfall corporate tax receipts are excluded. However, the fiscal stance is set to be expansionary in 2025-26, before turning broadly neutral in 2027. Over 85% of the Budget 2026 package of EUR 9.4 billion (1.7% of 2024 GDP; 2.9% of GNI*) is higher expenditures. These include sizeable capital outlays for social housing, healthcare and transport, alongside significant increases in current spending to expand public services in line with population growth and raise welfare payments. Multi-annual rollovers of the Rent Tax Credit and the 9% reduced VAT rate on gas and electricity, and an extension of the lower VAT rate to food, catering and hairdressing services (from July 2026) and to apartment sales, are among the main tax measures. Such a narrowing of the tax base heightens reliance on tax revenues from a small number of large multinationals. Gross public debt is projected to fall below 60% of GNI* (31% of GDP) by 2027.

Labour market resilience will support growth

As the positive carryover from early-2025 export front-loading fades, GDP growth is projected to slow to 2.1% in 2026, before recovering to 2.8% in 2027, as reduced volatility strengthens confidence. Given labour shortages, the labour market is projected to ease only gradually, with moderating employment and wage growth. Despite solid real income gains, households will remain cautious in 2025-26, leading modified domestic demand growth to slow to 2.3% in 2026, before edging up to 2.6% in 2027. Driven by food price pressures, and capacity constraints, headline inflation is projected to edge above 2% in 2026, before falling to 1.8% in 2027 as supply chains rebalance. Stronger capacity bottlenecks in infrastructure and housing could rekindle inflation. Continued tariff uncertainty and tighter non-tariff barriers on services could weaken investment and profitability, particularly among large multinationals, with knock-on effects on public finances. A faster-than-expected rebalancing of supply chains could ease uncertainty, supporting stronger growth.

Balancing fiscal prudence and structural reforms

With the economy operating near full capacity, pro-cyclical fiscal policy in 2025-26 risks amplifying inflation and output volatility. With a budget surplus and public debt below 60% of GDP, the EU rules are not currently a binding constraint. While higher spending is partly justified by rapid population growth and infrastructure gaps, a binding and credible domestic fiscal rule is needed. Improving spending efficiency and the continued allocation of windfall corporate tax receipts to long-term savings funds remain essential. Closing the innovation gap between multinationals and small and medium-size domestic firms should be prioritised to boost productivity. Easing regulatory constraints to lower costs in key professional services, including by allowing the establishment of multidisciplinary legal practices with a limited liability partnership status, is needed. Expediting permitting processes is key to reaching housing and climate targets.