While Ireland’s domestic economy continues to show signs of resilience, a range of global and local threats are casting a shadow over the economic outlook, according to the ESRI's Quarterly Economic Commentary, Summer 2025. Rising international uncertainty, driven by shifts in US trade policy and ongoing geopolitical tensions, is expected to dampen investment and consumer spending in the near term.
Although Ireland has so far been largely shielded from the impact of announced tariffs, particularly due to the exclusion of pharmaceutical goods, the growing role of services in total exports leaves the country vulnerable to future non-tariff barriers. As US-EU trade talks evolve, this remains a key concern. In light of these dynamics, GDP is forecast to grow by 4.6% in 2025 and 2.9% in 2026, with export growth predicted at 5.4% and 3.3% respectively. However, as the report warns, “if trade wars between the US and its trading partners intensify, this forecast will need to be revised downwards.”
Domestically, growth is expected to continue but at a more moderate pace compared to previous projections. Modified Domestic Demand is forecast to grow by 2.3% in 2025 and 2.8% in 2026. Inflation is projected to average 2.0% in 2025 and 2.1% in 2026. However, the inflation outlook remains tilted to the upside, with “a tight labour market and strong nominal wage growth” likely to push up domestic prices. External shocks, particularly to energy prices, also pose a risk. The unemployment rate is expected to remain stable at around 4% over the forecast period.
The report identifies two major challenges for the domestic economy. First, the public finances remain heavily reliant on windfall corporation tax revenues, raising concerns about long-term sustainability. Second, the pace of residential construction continues to lag behind what is required to meet housing demand.
While total tax revenues have been increasing, a drop in corporate tax intake in May served as a reminder of this vulnerability. At the same time, public expenditure is rising faster than planned in Budget 2025 and has grown substantially as a share of the domestic economy in recent years.
In terms of housing, completions are now expected to rise from 30,330 in 2024 to 33,000 in 2025 and 37,000 in 2026. These revised figures are lower than previously forecast, reflecting a weaker-than-expected first quarter and persistent structural challenges including high construction costs, infrastructure delays, limited financing, and labour shortages.
Commenting on the report, Alan Barrett of the ESRI stated: “The economy continues to perform well and the ongoing increase in the numbers employed in Ireland is very welcome. However, it is difficult not to be unsettled by global uncertainties. While the headline public finance figures appear healthy, the fact that Ireland is running a fiscal deficit (once the headline numbers are corrected for windfall revenues) appears risky.”
Conor O’Toole, also of the ESRI, added: “Despite the clouded international outlook, the domestic Irish economy appears to be performing robustly. Capacity issues in infrastructure and housing are likely to constrain long-term growth and need continued emphasis in terms of public expenditure.”
Barrett, A., O'Toole, C., and O'Shea, D. (2025). Quarterly Economic Commentary, Summer 2025, ESRI Forecasting Series, Dublin: ESRI, https://doi.org/10.26504/QEC2025SUM
