The Central Bank of Ireland has released its fourth and final Quarterly Bulletin of 2025. Robert Kelly, Director of Economics and Statistics has said that despite the challenges the Irish economy has faced in 2025, it has seemingly shown resilience. Kelly added that the overall outlook for the Irish economy in the medium term is now being shaped by “sectoral performances, structural change, geopolitical tensions and policy actions.”
They also mentioned that multinational sectors “that predominantly export are adapting to a changing international environment for trade and investment, and so far that adjustment has been relatively benign for Ireland.”
Kelly also mentioned that domestic activity signals “are more mixed, with data pointing to a slower pace of growth and higher inflation.”
They continued:
“How the multinationals have adapted to the changing EU–US trade and investment relationship, particularly pharmaceuticals remains a central driver of Ireland’s headline economic indicators. Ireland is a major hub for producing high‑demand medicines, yet firms have announced intentions to change pricing polices across their markets and their related value‑chain management and investment strategies.”
According to Kelly, this could lead “to volatility in headline GDP and alter the pattern of the volume and value of activity located in Ireland relative to elsewhere in the pharma value chain, with knock‑on effects for profitability and corporation tax receipts.”
They further stated that the fast-growing ICT services sector – another sector with a “presence in Ireland – both enables and is being reshaped by advances in AI.”
They pointed out that “creating conditions for the Irish‑resident ICT sector and the wider economy to benefit from this transformation is important in a more fragmented global landscape.”
Kelly also shared:
“As a small, highly globalised economy, Ireland’s prosperity will always be influenced by its attractiveness to foreign direct investment.”
They further stated that after several years of operating “above potential, momentum in the domestic economy is easing, reflected in lower employment growth and a slower pace of activity in domestic sectors.”
This is broadly consistent with “an economy facing capacity constraints, and it reinforces the need to improve supply‑side conditions that determine the domestic economy’s capacity to deliver gains in living standards.”
Taking account of the realised performance “in the year to date along with the stimulus from additional Government expenditure for 2025 announced subsequent to the Budget, overall MDD is projected to grow by just below 4 per cent in 2025.”
From 2026 to 2028, MDD is forecast “to grow at an annual average rate of 2.9 per cent per annum.”
This marks an upward revision “to the projections for 2026 and 2027 from QB3.”
The improved outlook compared with QB3 is “largely due to an upward revision to the forecast for modified investment.”
This is informed by the resilient outturn “for MNE investment in the year to date (most notably in intangible assets), a smaller than previously estimated drag on investment from uncertainty over the forecast horizon as well as Government policy decisions that are assumed to support higher investment, especially towards the end of the forecast horizon.”
Despite the improvement to the outlook compared “with the forecasts in September, the projections envisage a slowdown in MDD growth from the 6.1 per cent annual average realised outturn from 2021 to 2024.”
The projected slowdown in growth is now said to be “informed by a number of considerations.”
The growth in employment and incomes “that underpinned consumer spending since 2021 is expected to continue to moderate, feeding into a lower projected pace of growth in MDD.”
The cooler labor market is expected “to see employment growth easing to below 2 per cent, while the unemployment rate is expected to average 5 per cent and average wage growth easing back from 4.6 per cent this year to 3.5 per cent in 2028.”
Headline and core inflation have “increased in recent months with services making the largest contribution.”
HICP inflation is now expected to “average 2 per cent per annum out to 2028.”
Headline HICP increased, “on a year-on-year basis, by 3.1 per cent in November, with core inflation rising to 2.6 per cent in October.”
The equivalent outturns “for August were 1.9 per cent and 1.5 per cent.”
The recent increase in inflation is largely “explained by a pick-up in services inflation.”
Trend services inflation appears to have “settled into a persistently higher phase post‑Covid, at around 3 per cent, and higher than any period since 2007.”
This is occurring even though construction – typically “a lower‑productivity sector – accounts for only 5.5 per cent of output in domestically dominated sectors, compared with 10 per cent in 2007.”
The more domestic activity relies “on lower‑productivity sectors, the greater the risk of higher inflation, underscoring the need for macroeconomic management of the necessary expansion in construction activity to deliver on infrastructure and housing needs, and for actions to improve the productivity of the sector itself.”
With potential upside possibilities to growth “being restricted, the overall balance of risk to the forecast for economic growth is tilted to the downside.”
These downside risks include the potential for “an escalation of global trade tensions and delays in relieving infrastructural deficits, both of which would reduce growth below the central forecast.”
The balance of risks to the inflation outlook have now “shifted from being broadly balanced to being primarily to the upside.”
The update concluded that despite cooling, the labor market “remains relatively robust with unemployment forecast to remain close to 5 per cent.”