Bank of Ireland revises up Irish growth forecasts amid pharmaceutical boom and resilient domestic demand

Bank of Ireland has revised upward its forecasts for Irish economic growth, driven mainly by buoyant pharmaceutical sector, resilient consumer spending and strong public investment key drivers.

Ireland’s GDP is now projected to grow by 10.7% in 2025 and 3.1% in 2026, up from previous estimates of 8.1% and 3.2%. Modified domestic demand is also expected to expand by 3.4% in 2025 and 2.6% in 2026, reflecting robust activity across both public and private sectors.

Conall Mac Coille, Chief Economist, Bank of Ireland commented: “Despite global headwinds, Ireland’s defensive export profile, particularly in pharmaceuticals and ICT, continues to shield it from volatility. The recent Pfizer agreement with the White House has helped preserve tariff exemptions for Irish exports, placing Ireland in an enviable position compared to other European manufacturing-heavy economies.

“Following the Q3 housing data, completion numbers are still on track for our forecast of 34,500 in 2025. The 33,000 units completed in the year to Q3 is the highest number of units since the Celtic Tiger period. The output shows that some commentary that homebuilding might contract in 2025 were wide of the mark. 4Dublin Housing Supply Pipeline figures show that there is two to three years of apartment supply in the capital still under construction. Viability issues and weak planning permissions for apartments won’t hit until 2028-29.

“While the fundamentals of the economy are strong, risks remain. The reliance on corporate tax revenues from a small number of firms is a fiscal vulnerability. A sudden shortfall could necessitate swift budgetary adjustments. The outlook for 2026 remains cautious amid global trade disruptions and potential corrections in technology and AI equity markets. However, Ireland’s export sector, historically resilient during downturns, remains well-positioned to weather these challenges.”

Key points on new Bank of Ireland forecasts:

  • US tariffs mostly avoided: Irish exports to the US, especially pharmaceuticals, remain largely tariff-free following a White House deal with Pfizer. The new 15% tariff affects only 2–3% of exports, posing minimal impact compared to other EU manufacturing-heavy economies.
  • Exports resilient despite global headwinds: Trade growth among developed nations is expected to slow in 2026 due to unwinding US tariffs and supply chain issues. Ireland’s export base in ICT and pharma remains defensive and stable, though risks like tech equity corrections and Fed-related uncertainty persist.
  • Consumer spending holding up: Spending is forecast to grow 2.8% in 2025 and 2.4% in 2026, supported by falling inflation and strong wage growth (5.3%). Confidence remains high, though frozen tax bands may slightly dampen real incomes. Households may dip into savings to maintain spending.
  • Public spending boosts demand: Government accounts for nearly 25% of domestic demand. Budget 2026 includes an 8% spending increase to €118bn. However, reliance on volatile corporate tax revenues, largely from just 10 firms, poses fiscal risks if receipts fall short.
  • Housing market:
    • Supply – Following the Q3 housing data, completion numbers are still on track for our forecast of 34,500 in 2025. The 33,000 units completed in the year to Q3 is the highest number of units since the Celtic Tiger period. The output shows that some commentary that homebuilding might contract in 2025 were wide of the mark. 4Dublin Housing Supply Pipeline figures show that there is 2-3 years of apartment supply in the capital still under construction. Viability issues and weak planning permissions for apartments won’t hit until 2028-29.
    • Prices – Prices are set to rise 6% in 2025 and 3.5% in 2026, with asking price inflation easing to 5.7%. Completions are on track to hit 34,500 units this year, improving supply. That MyHome asking prices fell by 0.4% during the summer – with annual inflation easing to 5.7% – shows the pace of house price gains are easing back to mid-single digit territory.
  • Construction recovery underway: Non-residential investment is rebounding after five years of decline, with a projected 6.6% growth in 2025 following a long-term 28% contraction.
  • Labour market softening: Employment grew 1.7% to 2.56 million, the slowest since the pandemic. Consumer-facing sectors are most affected, with housing shortages also limiting hiring. Job growth is expected to slow to 1.5% in 2026, with unemployment edging up to 4.8%.