Quarterly Economic Digest Q1 2026 – Insight

Ireland’s economy defied expectations in 2025, growing significantly despite global headwinds and weak consumer sentiment.

With GDP growth of around 12% in 2025, Ireland’s economy has weathered the storm well so far as geopolitical tension and realignment continues. Domestic demand grew by around 4% in 2025 and growth of close to 3% is expected in 2026, pointing to the economy’s continued resilience.

Inflation has remained close to target. The unemployment rate has increased slightly, but so too has the number of people in employment as the workforce continues to grow. The Government’s spending commitments have grown significantly, in large part to close a persistent infrastructure gap and ameliorate the ongoing housing crisis, both of which threaten Ireland’s economic competitiveness. The long-term sustainability of increased capital spending depends on exchequer revenues continuing to meet expectations.

1.9%

Increase in GDP projected for 2026.

1.8%

Inflation rate forecast in 2026.

5.3%

Unemployment rate in Q3 2025.

€19.1bn

Projected government capital expenditure in 2026.

Section 1 Economic Output

The Irish economy outperformed expectations in 2025.

2025 was defined by remarkable growth in gross domestic product (GDP), despite headwinds and uncertainty. While actual figures for 2025 are not yet available, PwC projects that the economy grew by 11.7% (see Figure 1). The Central Bank of Ireland (CBI) forecast for 2025 is 12.8%, while the Economic and Social Research Institute (ESRI) forecasts growth of 13.1%. The 2025 growth surge reflects strong multinational sector activity throughout the year and strong export growth in the first half of 2025, partially as market actors moved in response to anticipated tariffs. Current forecasts for 2026 are much more subdued. PwC projects that the economy will grow by 1.9% this year, while the CBI forecasts growth of 3.2%. By contrast, the ESRI forecasts an economic contraction of -5.7%. This may signal a return to a more normalised growth path, closer to underlying domestic demand trends rather than the volatility experienced in 2025 due to the activity of multinationals.

MDD forecasts signal continued strength in Ireland’s real economy

Modified domestic demand (MDD), which more accurately reflects Ireland’s domestic economic activity, is expected to land between 3.9% and 4.0% in 2025, as forecast by the CBI and the ESRI respectively (see Figure 2). Growth in MDD for 2025 was driven by investment in intangible assets rather than domestic consumption, which remained relatively stable compared to 2024. MDD growth is expected to remain relatively strong in 2026 due to continued growth in incomes driving consumption.

Consumer sentiment remains steady but below historical average

Irish consumer sentiment increased slightly in January 2026 to 64.7, but remains significantly lower than January 2025 (74.9) and well under the near 30-year average of 83.6 as noted by the Irish League of Credit Unions (ILCU) (see Figure 3).

While Ireland’s economic performance remains strong, with consumers viewing both multinational and domestic business sectors relatively favourably, this failed to translate into improved confidence around everyday concerns. Consumer sentiment across the last three quarters has remained stable at close to 60. The ILCU’s commentary notes the striking disparity between macro-level economic performance and household-level experience. When adjusted for population growth and household formation, income gains per household have been marginal. The steady-but-subdued nature of the sentiment indicates a ‘wait and see’ approach among consumers as they navigate current economic conditions.

Figure 2
Figure 3

US growth forecast to ease as European economies maintain modest growth

While the US is forecast to continue to grow faster than the euro area and the UK in 2026, the gap is forecast to narrow considerably in 2027 (see Figure 4). This reflects a moderation of US economic expansion and improved growth in European economies. A slowdown in the US economy would pose a risk to Ireland given the concentration of US multinationals and the significance of US-Ireland trade flows. The euro area and UK are both forecast to maintain modest growth of 1.2% in 2026, followed by slightly higher growth in 2027, of 1.4% and 1.6% respectively. Given Ireland’s reliance on UK and euro area trade, improving economic conditions in those economies should benefit the Irish economy.

Section 2 Inflation

Ireland’s inflation outlook remains broadly stable

Ireland’s inflation outlook remains stable, with updated forecasts indicating that inflation will remain close to target over the medium-term. We project annual inflation of 1.9% in 2025, easing slightly to 1.8% in 2026 before edging up to 1.9% in 2027 (see Figure 5). The Central Bank of Ireland forecasts a similar trajectory for the harmonised index of consumer prices (HICP), with inflation shifting around the 2% target, from 2.1% in 2025 to 2.3% in 2026 and 1.8% in 2027, while the ESRI expects somewhat more persistent pressures, projecting 2.2% in 2025 and 2.1% in 2026. These forecasts reflect a continued normalisation of goods inflation and easing energy costs, consistent with wider euro‑area trends.

Domestic services remain the main source of upward price pressure. The ESRI highlights that the restaurants and hotels category continued to contribute strongly to inflation through 2024 and 2025, supported by resilient demand in hospitality and labour‑intensive service sectors. Food inflation also strengthened over the course of 2025, while earlier negative contributions from housing, energy and transport have largely unwound. Although headline inflation is now firmly within its pre‑pandemic range, these sector‑specific dynamics suggest that modest upward pressure may persist in the near-term.

Global inflation expected to ease across major economies

Inflation among Ireland’s key trading partners is also expected to continue moderating, though differences in labour market conditions and monetary policy cycles remain (see Figure 6). We expect inflation across the euro area, US and UK to range from 1.9% to 3.4% in 2025, before gradually easing towards the 2% target by 2027. Euro‑area inflation is projected to stabilise at around 2.0%, while inflation in the US is expected to fall from 2.7% in 2025 to 2.5% in 2026, and UK inflation to decline more sharply from 3.4% in 2025 to 1.9% in 2026.

These developments reflect a continued softening in global goods prices, slowing wage pressures and expectations of monetary policy easing. The ECB, Federal Reserve and Bank of England are all expected to deliver at least one rate cut in the first half of 2026, helping to reduce borrowing costs and support the disinflation process. However, risks remain: the ESRI notes that evolving global trade policies, particularly in the US, may continue to pose upside risks to inflation by affecting supply chains and import prices. Overall, the downward trend across major economies supports a stable external inflation environment for Ireland.

Figure 5
Figure 6

Section 3 Labour Market

Unemployment rate highest level in four years.

The unemployment rate in Ireland increased to 5.3% in Q3 2025, marking its highest level since Q3 2021. Despite an increase in the unemployment rate, the number of persons in employment has increased over the same period, from 2.5 million in Q3 2021 to 2.8 million in Q3 2025 (see Figure 7). Ireland’s rising employment reflects a rapidly expanding labour force, driven by population growth, inward migration and increased labour market participation while rising unemployment is likely driven by the labour force outpacing net job creation.

Ireland’s tech sector adjusts to challenging global market conditions

As noted, Ireland’s labour market remains tight with employment rising in Q3 2025. However, externally oriented sectors are showing signs of vulnerability. The number of people employed in the information and communications sector grew from 130,500 in Q1 2020 to 191,800 in Q1 2025 and has since experienced decline in Q2 and Q3 2025 (see Figure 8). Ireland’s tech sector has entered a more cautious phase, reflecting global headwinds, US policy uncertainty and restructuring among multinational tech firms. A number of major multinationals with Irish bases have already announced job cuts as part of broader restructuring and research by Indeed notes the tech sector has seen some of the sharpest declines in job postings from pre-pandemic levels. While overall employment in Ireland remains robust, the concentration of high-value jobs in multinational technology firms makes the sector particularly exposed to global volatility.

Figure 7
Figure 8

Figure 7. Unemployment rate and persons in employment

Migrant participation in the labour force

Ireland’s labour force is structurally dependent on migrant workers. Without them, Ireland would face significant economic and social disruption as Ireland’s domestic labour supply cannot meet our current economic demands. As can be seen in Figure 9, Ireland’s migrant population contributes very significantly to the workforce. EU citizens working in Ireland (excluding Irish citizens) have the highest employment participation rate at 78%, UK citizens working in Ireland have the lowest rate at 58% and other citizens (excluding EU and UK) have a rate of 76% (see Figure 9). Market participation is higher among foreign citizens for several reasons. These cohorts are likely to be of working age and are more likely to migrate specifically for work. Irish nationals generally have lower market participation due to a higher number of people in full-time education, part-time work or who maintain carer or home duties. UK citizens display market participation rates closer to Irish citizens due to the longer-standing tradition of migration between Ireland and the UK. UK citizens in Ireland are older on average than EU and other citizens and have been settled in Ireland for much longer periods.

Section 4 Fiscal Outlook

Ireland’s ambitious capital investment forecast is much-needed but to sustain it over the long-term, Ireland cannot rely on once-off windfalls

The National Development Plan (NDP) Review, along with the Expenditure Report for Budget 2026, indicates that Ireland is set to see a total public investment of €275.4 billion over the next decade. Of this, €202 billion is exchequer-voted capital expenditure, with an initial €102.4 billion allocated between 2026 and 2030. This positions Ireland as one of the highest capital investors in the EU, after years of being a laggard, with investment levels remaining above the EU27 average at close to 5% of gross national income (GNI) in each of these years. In 2025, government capital expenditure stood at approximately €17 billion, while projected capital expenditure for 2026 is targeted at €19.1 billion. Capital expenditure is estimated to increase year-on-year up to 2030, before plateauing at around €20 billion per annum from 2031 through to 2035.

To deliver this level of investment, the Government plans to draw on a mix of funds, including the release of once-off tax receipts, sale of bank shares and broader State funds such as the Infrastructure, Climate and Nature Fund. While the plan laid out by the Government is ambitious, it’s worth noting that the underlying revenue growth, excluding corporation tax, is expected to average at 5.5% over the 2026-2028 period according to the Central Bank. This suggests that sustaining this level of investment may prove challenging if revenue growth does not keep pace with expectations.

Government doubles down on housing with a 60% increase in departmental capital allocation, but delivery remains the real test

Of the total gross voted capital allocations for 2026, the six highest departmental allocations have been captured in the graph below. The most significant allocation is to the Department of Housing, Local Government and Heritage (DHLGH), which sees its budget rise by 60% from €4.5 billion in 2025 to €7.2 billion in 2026. This reflects the Government’s continued focus on housing delivery and water infrastructure. Housing and other priorities increased from €2.65 billion in 2025 to €5.85 billion in 2026, an increase of approximately 120%, while water infrastructure saw a decrease from €1.85 billion to €1.4 billion.

Transport is the second largest recipient, rising from €2.9 billion to €3.4 billion, signalling continued investment in road, rail and public transport networks. The Department of Further and Higher Education, Research, Innovation and Science (DFHERIS) also recorded a notable increase from €695 million to €810 million, supporting further investment in higher education and research infrastructure. However, the Department of Health saw an increase of just €100 million, which raises questions as to whether it’s sufficient given the severe and well-documented deficits in Ireland’s health infrastructure.

In terms of Ireland’s infrastructure development, the direction is clear for the year with housing and transport as the focal points. However, the ability to translate these allocations into actual delivery will depend on Ireland’s historic challenges such as construction capacity, planning timelines and cost inflation.

Section 5 Behavioural Issues

Each quarter we take the opportunity to keep our biases in check

Cognitive biases are systematic errors in the way individuals reason with the world around them due to subjective perceptions of reality. In this section, we explore the what, where, when and why of a different bias each quarter.

Choice architecture is the deliberate design of the environment and context in which people make decisions, influencing their choices without restricting their freedom of choice. Choice architecture falls under the umbrella of libertarian paternalism. The libertarian aspect preserves freedom of choice for individuals while the paternalistic aspect aims to influence decisions in such a way that improves the welfare of the individuals.

Ireland’s new auto-enrolment pension scheme is an example of choice architecture in public policy. The scheme implements a default option of participation for eligible employees while respecting the freedom of choice of individuals by offering an opt-out option, which requires deliberate action. This use of choice architecture addresses the historically low voluntary pension uptake and aims to protect employees’ financial welfare in the long run.

Social media platforms shape user behaviour through algorithmic design choices that systematically exploit cognitive biases. These design choices can reduce effective user autonomy and distort rational decision-making. Social media algorithms actively shape what users see by curating feeds. Platform algorithms optimise for engagement rather than safety or accuracy and for younger users, this can unintentionally accelerate pathways into extremist content. According to the World Health Organisation (WHO), problematic social media use in teenagers increased from 7% in 2018 to 11% in 2022. To reduce harms linked to social media algorithmic choice architecture, Australia implemented a national minimum age of 16 for social media accounts. This is a relatively new initiative, having come into effect in December 2025 and is the first of its kind in the world, so concrete results from its implementation are not readily available.

Choice architecture is everywhere and because it cannot be avoided, protection from its more detrimental forms must be multifaceted with regulators, firms and individuals each playing a role.

Regulators can set clear rules for the market to protect individuals from exploitation. Firms can design defaults that serve users’ interests and provide clear and accessible opt-out mechanisms. Individuals can learn to recognise choice architecture at work and take active steps to protect their autonomy, such as deactivating personalised ads, push notifications, and quick-purchase options.

Choice architecture is built on access to data, meaning that privacy and data-sharing settings are an important line of defence, helping to protect people from the exploitation of their biases.

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