Irish economy positioned for growth despite ongoing risks
Ireland is well-positioned to rank among Europe’s top performers in 2026. Dr Daragh McGreal explains why
The Irish economy will be among the top five performers in Europe in 2026 according to KPMG’s 2026 Economic Outlook.
KPMG expects Irish GDP growth of three percent and modified domestic demand (MDD) growth of 2.5 percent in 2026.
This resilience will be powered by strong demand, employment and strategic government investment.
Couple with this, deal activity is strong in Ireland and globally, pointing to optimism amongst business leaders.
Immediate threats remain, however—among them global trade tensions, tariffs, infrastructural challenges and stock market uncertainty.
Export growth, driven by the pharmaceutical and information and communication technology sectors, will continue but the risk of sudden external disruption is real.
Infrastructure bottlenecks
The challenge of delivering infrastructure is widely acknowledged. The growing impact of transport delays, especially in the Greater Dublin area, runs a real risk of feeding into logistics costs, which are inevitably passed on to the end user in the form of higher prices.
Moreover, there is a potential impact on employee productivity as commuters face persistent difficulties driven by road and rail capacity issues.
Housing market challenges
Ireland’s housing market remains a defining challenge.
House price inflation will slow in 2026, potentially to 4-5 percent, but still higher than wage growth.
Reforms to the rental market should help renters. The government’s €103 billion National Development Plan and €19 billion capital budget for 2026 aim to address bottlenecks, but execution risks—delays and cost overruns—could blunt the impact.
Commercial real estate is stabilising, but office sector risks persist, especially for secondary stock facing challenging environmental standards.
The housing market is a pressure cooker: unless supply catches up, the risks of overheating remain.
Housing is the economy’s Achilles heel. Strong population growth and supply constraints mean that even as we build more, demand keeps outpacing us.
The Government’s capital plan is a step in the right direction, but it won’t solve our problems overnight and we don’t have enough construction workers to deliver quickly enough.
To address bottlenecks and spur growth, we need to significantly increase our use of modular and off-site construction, where feasible.
Interest rates and Government finances
Major central banks in Europe have paused their rate-cutting cycles—except for the Bank of England. KPMG expects Eurozone inflation to be 1.6 percent in 2026 and European Central Bank (ECB) rates to hold.
Ireland’s exposure to market-based rate expectations means any global financial stress could quickly raise borrowing costs, however. This risk is not hypothetical—market volatility remains a threat to household and business finances.
If the ECB increases interest rates by 0.5 percent, then an average new first-time buyer could expect annual mortgage repayments to be €1,200 higher.
Labour market trends
Wage growth is robust across most sectors, especially construction, hospitality and professional services. On average, it will be three percent in 2026.
Employment growth remains positive but will slow to 1.5 percent, which is still a healthy signal.
The unemployment rate rose in 2025, ending the year at higher than five percent. The uptick last year can be linked to demographics, migration and artificial intelligence. This year, we will see the rate settle at around five percent.
Geopolitical and strategic risks
Global trade tensions, US tariffs and competition from China are reshaping the outlook for both Ireland and Europe.
While Ireland is fortunate that only three percent of our exports are exposed to US tariffs, our Eurozone peers’ exposure is higher. This is dampening growth.
Europe’s next big risk is its reliance on China for critical raw materials and the energy transition.
Dr Darragh McGreal is Head Economist at KPMG