Bank of Ireland eyes domestic economic growth of 3.5%

Bank of Ireland has released updated economic forecasts predicting a 3.5% expansion of the domestic economy in 2026, followed by a slower 2.5% growth rate in 2027. The central bank’s projections suggest a continued recovery in key sectors despite challenges related to inflation and the unwinding of previous export surges. According to the report, housing completions are expected to reach nearly 40,000 units this year, marking an increase from the 36,000 units completed in 2025. The forecast highlights a shift in the composition of economic growth, with the traditional measure of GDP, excluding multinational corporate activity, projected to decline by 3% in 2026. This follows a notable surge in pharmaceutical exports during 2025, which had previously boosted overall economic figures. However, the impact of these exports is expected to diminish in the current year, contributing to the projected GDP contraction. Inflation expectations have been revised downward due to a decrease in global oil prices, which have fallen from a peak of nearly $118 per barrel following the outbreak of conflict in Iran to approximately $90 per barrel. As a result, the bank anticipates inflation rates of 3.1% in 2026 and 2.7% in 2027. These adjustments reflect the broader economic landscape shaped by evolving international dynamics and shifting market conditions. Job creation trends indicate a slowdown, with employment growth expected to be 1.1% in 2026 and 1.5% in 2027. Conall Mac Coille, Bank of Ireland’s chief economist, emphasized that while the pace of job creation is moderating, the labor market remains resilient. He noted that housing completions are anticipated to rise to 39,600 units in 2026 and further increase to 42,000 units in 2027. Mac Coille highlighted that Ireland is poised to experience one of the fastest-growing construction sectors within Europe over the next two years. This growth is attributed to robust performance in non-residential and civil engineering activities. Additionally, foreign direct investment is being bolstered by advancements in the development of weight loss drugs and the ongoing AI-driven investment cycle. Notable expansions by major corporations such as Eli Lilly and Novo Nordisk in Ireland underscore the country’s appeal as a hub for innovation and manufacturing. These developments are supported by increased machinery and equipment spending, which rose 17% year-on-year in the first quarter of 2026. This growth is largely driven by investments in data centers linked to artificial intelligence technologies. Furthermore, Intel has announced a substantial €5 billion investment in its Irish plant, responding to sustained demand for semiconductors. Despite these positive indicators, the challenge of meeting annual housing demands remains significant. Observers estimate that between 50,000 and 60,000 homes must be constructed each year to address the existing demand for accommodation. While the current forecast suggests progress toward this goal, achieving the necessary scale of construction will require sustained efforts and strategic planning. The Bank of Ireland’s forecasts provide insight into the evolving economic landscape, reflecting both opportunities and challenges facing the domestic economy. With a focus on construction and technological advancement, Ireland is positioned to navigate through periods of transition while maintaining momentum in key industries.