Quarterly Economic Commentary, Summer 2026
Read the supporting papers:
The distributional impact of energy price increases in Ireland and the policy response
Irish small firm financing: Where are we 20 years since the financial crisis?
Forecast overview
The context for this Commentary is binary in nature due to two conflicting factors. On the one hand, the Irish economy continues to grow. Notwithstanding the large fall in gross domestic product (GDP), which was recorded for Q1 2026 (-12.1 per cent), modified domestic demand (MDD) grew by 0.6 per cent, income tax receipts are up by 7.5 per cent on the same period last year and unemployment remains low, at 4.9 per cent in May.
On the other hand, the conflict in the Middle East led to the closure of the Strait of Hormuz and damage to energy production infrastructure, whereby energy and other input prices increased. Drawing on data from futures markets and on analysis by the National Institute for Economic and Social Research (NIESR) in the UK, we have developed estimates of: the inflationary impacts for Ireland; and the impact on the demand for Ireland’s exports, as the global economy reacts.
The analysis leads us to believe that economic growth in Ireland, as measured by MDD in 2026 and 2027 will remain positive at 2.6 per cent and 2.8 per cent respectively. The 2026 forecast is higher than that in our spring Commentary (2.1 per cent), with the difference driven by modified investment. For Consumer Price Index (CPI) inflation, we now expect a rate of 3.7 per cent in 2026 and 3.1 in 2027 (up from 3.2 and 2.7 per cent in our spring Commentary).
Ireland’s exports have shown a remarkably volatile profile over the last 18 months, due mainly to the ramping up in advance of the Trump tariff announcement in spring of 2025, followed by subsequent scaling back of exports. For 2026, we expect exports to contract by -4.0 per cent before a return to a more usual profile in 2027, with a growth forecast of 5.7 per cent.
Housing output remains a core concern. Based on some positive indicators, we have increased our housing output forecasts to 38,500 for 2026 and just under 40,500 for 2027. While this represents a welcome movement, the absence of a sufficiently large and sustained increase in output alongside emerging inflationary headwinds together lead us to believe that supply will remain short of demand over our forecast horizon. Given the failure to meet housing targets in the recent past and the expectation of continued shortfalls relative to demand, the housing deficit will continue to grow.
Our outlook for the labour market remains broadly positive and we expect unemployment to remain low. However, we look at some emerging studies on the possible impact of artificial intelligence (AI) on the Irish labour market. These studies point to considerable numbers who could be negatively impacted, highlighting the need for close attention to this area.
In our General Assessment, we draw on a paper by Bercholz et al. (2026) published with this Commentary and discuss how the Government’s approach to the fuel package was not ideal due to the lack of targeting. We discuss how the ready availability of revenue, and hence the weak budget constraint, appears to be contributing to conditions where policy is sub-optimal.
Another paper published with this Commentary by Coates et al. (2026) shows how Irish small and medium-sized enterprises (SMEs) face significant challenges in accessing finance, with high borrowing costs and limited banking competition, which have implications for their capacity to scale. Finally, in Box A in the Commentary, McArdle et al. analyse emissions data and find evidence of decarbonisation in the transport and industry sectors, but less so in the case of agriculture. The authors also note that continued monitoring is needed to see if the observed decoupling is sustained.