EY Economic Eye: Continued growth forecast for Irish economy but global headwinds a concern

• EY forecasts Irish GDP to increase by 4% in 2025 and 3.8% in 2026; Modified Domestic Demand to grow by 3.3% in 2025 and 3.2% in 2026
• Employment growth of 2.2% in 2025 and 2% in 2026 in Ireland
• Inflation averaging 2% in 2025; EY expects further ECB interest rate cuts in 2025
• Northern Ireland economy forecast to grow by 1% in 2025, increasing to 1.7% in 2026 

Dublin, 28 February 2025: Good growth is in prospect for the two economies on the island of Ireland in 2025 and into 2026 alongside more jobs and lower interest rates as the European Central Bank and Bank of England’s easing cycles continue, according to the latest EY Economic Eye forecasts. In Ireland, strong employment, healthy tax revenues, and low inflation all point to an economy in good shape notwithstanding global headwinds. In Northern Ireland, economic and jobs growth will continue albeit at a slightly slower pace than in 2024.

Economic growth in Ireland remains strong, with GDP forecast to rise by 4% this year and 3.8% in 2026. Modified Domestic Demand, which focuses on the domestic economy, is expected to grow by 3.3% in 2025 and 3.2% in 2026, with consumer spending expected to grow by 3%, Modified Investment by 4.5% and Exports by 4.5% in 2025. Overall, Ireland is forecast to significantly outpace growth forecasts for our neighbours in the Euro area (1%), the UK (1%) and the United States (2.2%).

The number of people in employment in Ireland was almost 2.78 million in the fourth quarter of 2024, with most sectors, notably construction and information and communications, recording annual gains. Looking ahead, EY projects employment growth of 2.2% in 2025 and 2% in 2026, and while the unemployment rate is projected to edge up to 4.4% in 2025-2026, this remains low by historical standards.

Inflation is stabilising as key drivers of the spike in 2022 and 2023, particularly energy, have waned. EY is forecasting that inflation will stand at 2% in both 2025 and 2026, down from 6.3% in 2023 and 7.8% in 2022. Encouragingly, EY expects that the ECB is not yet done with interest rate reductions, with further interest rate cuts pencilled in for 2025, taking the main refinancing rate down to 1.9%.

The Northern Ireland economy and labour market did reasonably well in 2024 in spite of challenges across the broader UK economy.  EY forecasts that the economy will grow by 1% this year, slightly down on the 1.2% growth in 2024, and by 1.7% in 2026, with employment to increase by 0.4% in 2025 before expanding to 0.8% in 2026

Dr Loretta O’Sullivan, EY Ireland Chief Economist, says:

“The Irish economy has entered 2025 in good shape, with impressive employment numbers and the unemployment rate at a near-historic low. Wages are rising faster than consumer prices, boosting households’ purchasing power, and the European Central Bank is cutting interest rates, lending support to business investment. Exports have rebounded and the fiscal position is also strong, enabling large-scale public capital spending. More economic growth is in store this year and next as consumers spend on goods and services and businesses invest in technology and other transformation levers.

“Further jobs and wage growth is projected too, albeit at a more moderate pace than in recent years. Meanwhile, the ECB is expected to stay in easing mode and the normalisation of inflation will also be welcomed by businesses and households.

“However, policy shifts in the US are making for an unsettled external environment.  Organisations will need to continue to navigate this uncertainty in relation to global trade. Specifically, US trade policy is expected to be transactional during President Trump’s term in office, with protectionist measures used to extract concessions from partners including China, Canada, Mexico and the EU. Ireland has substantial trade links with the US meaning it could be exposed to potential US trade barriers.

“While the domestic economy is performing well, globally there is a lot of uncertainty at present, so investment in innovation and infrastructure is needed now more than ever. Doubling down on infrastructure delivery, training and upskilling the workforce, accelerating the green transition, and harnessing transformative technologies like artificial intelligence will be key, underpinning competitiveness and ensuring Ireland’s continued attractiveness for Foreign Direct Investment.”

Growth in prospect for Northern Irish Economy

The Northern Ireland economy and labour market did reasonably well in 2024, even though the Purchasing Managers’ Index (PMI) points to a loss of momentum in private sector activity around the turn of the year. In her Autumn Budget, the Chancellor of Exchequer announced an additional £1.5 billion for Northern Ireland and a welcome green light for the Mid South West and Causeway Coast and Glens Growth Deals.

EY expects the Bank of England to maintain its gradual approach to monetary policy loosening and to lower interest rates to 3.75% by the end of 2025, from 4.5% currently. This will benefit households and businesses in Northern Ireland and lend support to the economy, which is projected to expand by 1% in 2025, a touch below last year’s print (1.2%), and by 1.7% in 2026.

A slowdown in job gains is forecast for Northern Ireland with growth of 0.4% pencilled in for 2025. This follows a good performance last year (1.6%) and reflects softening economic conditions and the increase in employers’ National Insurance contributions that comes into force in April.

Rob Heron, EY Northern Ireland Managing Partner says:

“Positively, the Northern Irish economy looks set to continue to grow this year and interest rates are trending downwards, which is good news for businesses and consumers. A key strength of Northern Ireland’s economy is its labour market, with further jobs growth expected this year, albeit at a lower rate of growth than 2024. EY NI will open our new office in Derry/Londonderry in the middle of the year demonstrating our commitment to fostering talent and innovation to support regional development and prosperity.”

Read or download our latest forecast here.

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