New pharmaceutical production facilities and the growth of weight loss drugs will deliver a “permanent upshift” in Irish GDP, despite GDP growth predicted to fall to 2.8% this year, according to Bank of Ireland.
The bank is predicting a GDP slowdown to 2.8% in 2026, from its previous prediction of 3.1%, but revised up slightly its forecast for GDP growth in 2025 to 11.2% from 10.7% previously, because the export boom of 2025, driven by new pharma production and firms pre‑empting US tariffs, will ease off. The expected falloff this year could worsen if exports fall back quickly.
Bank of Ireland group chief economist Conall Mac Coille forecasts the economy expanding at a “slower, more sustainable” pace in 2026.
The Bank expects modified domestic demand (MDD) – which includes spending by Irish consumers, Government spending on goods and services, and modified investment but does not include exports – to grow by 2.3% in 2026, helped by consumer spending (2.3%), government spending (4%) and construction (6.6%). The planned 8% rise in public spending to €118bn in the budget will account for one-third of the growth of MDD.
“Our forecasts point to the Irish economy easing into a more sustainable but still solid pace of growth. Even as employment growth moderates toward 1.5%, momentum in construction and public investment are encouraging. Budget 2026 provided an important boost through higher capital spending, which will offset the impact of heightened uncertainty on investment,” said Mr Mac Coille.
“Geo-political uncertainties, tariffs and trade disruption, stretched equity market valuations, and threats to the US Federal Reserve’s independence are just some of the external risks. Elevated household savings and weak business sentiment surveys suggest the uncertain environment has already weighed on spending and job creation. IDA Ireland’s results showing a 1.5% rise in multinational sector employment to 312,000 in 2025, despite the fraught global environment, was a welcome sign that many companies are weathering the storm.”
Mr Mac Coille said that despite many of the risks facing Ireland coming externally – including volatile US policy making under the Trump administration – the export sector’s underlying conditions remain solid, “with firms expecting further expansion and multinational employment rising in 2025”.
“A key concern is that competitiveness pressures and infrastructural bottlenecks may act as an ever more pressing constraint on the Irish economy. A key uncertainty remains the true pace of the slowdown in job creation last year, especially amongst consumer facing sectors such as retail and hospitality, likely evidence of wage-cost pressures.
“Given the uncertain outlook, implementing the Government’s ‘Accelerating Infrastructure Report and Action Plan’ will be essential for the successful rollout of the €106bn National Development Plan (NDP). We were particularly encouraged by the 6% rebound in non-residential construction in 2025, after five years of contraction, suggesting the sector is finally overcoming the ramp-up in build costs. NDP rollout should help this recovery continue.”
Bank of Ireland expects house price inflation to slow to 4% in 2026, as stretched affordability cools price growth. MyHome asking price inflation was 5.4% in late 2025 and with the average mortgage approval at €337,600 in November up 3.5% year on year. “Still, the lack of housing supply, means there are significant upside risks to this forecast if the market regains momentum this year,” the bank warned.
