Economy to grow at 3% in 2026 despite risks

Continued growth in a resilient economy

Ireland to be one of Europe’s top performing economies in 2026
Infrastructure bottlenecks adding to input costs
Jobs growth and wage increases expected to continue

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 3% and MDD growth of 2.5% in 2026. This resilience is 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.

However, global trade tensions, tariffs, infrastructural challenges and stock market uncertainty are immediate threats. Export growth, driven by pharmaceuticals and ICT will continue. But the risk of sudden external disruption is real. Europe and the UK will likely only reach ~1% GDP growth, while US growth will be ~3% with nearly three-quarters of this growth coming from data centres and AI.

Daragh Mc Greal, Head Economist at KPMG in Ireland says “Ireland’s economic growth in 2025 far outpaced its European peers, underscoring its economic resilience. Our growth in 2026 will be heavily linked to sales of a few pharma drugs, AI adoption in the workplace, and construction. Our nearest trading partners are forecasting sluggish growth and global headwinds and shifting trade patterns mean we must grow our trading relationships with economies in Asia, Latin America, and the Gulf and broaden our manufacturing base. The economy is proving robust, but we face a growing range of risks.”

Daragh McGreal

Economist

KPMG in Ireland

mail
call

Inflation & living costs are eroding incomes

There is a real risk of a disconnect between strong economic growth and what people see in their wallets.

Dr. Daragh McGreal

Head Economist

KPMG in Ireland

Despite easing energy costs, inflation in groceries, rent, and house prices were all up ~7% in 2025. While wage growth was strong (5%), many people ended up worse off. In 2026 we expect wage growth will be ~3%, but for many, real incomes will be eroded by static income taxation and rising living costs. The disconnect between headline growth and household finances is a critical risk for consumer sentiment and spending. If inflation remains sticky, it will undermine the perceived benefits of economic growth.

“Since 2020, most workers have done well: average wages are up about 30%, with some sectors like construction and IT doing better. However, inflation in general is up 25% over the same period. Price levels remain high compared to peer EU countries, especially for essentials like food and clothing. Wage growth is being eroded by prices and static income taxation. There is a real risk of a disconnect between strong economic growth and what people see in their wallets.” – Dr Daragh Mc Greal, Head Economist, KPMG in Ireland.

Infrastructure bottlenecks are a challenge

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.

“The Accelerating Infrastructure Task Force was forthright in its assessment of what needs to be done. However, even with vital efficiency improvements, large projects still require both time and labour for completion. Inevitably, as we tool up to address our infrastructure bottlenecks, existing pressures will continue. These projects are already costly – yet the cost of delay is even higher”. – Dr Daragh Mc Greal, Head Economist, KPMG in Ireland.

House price growth to slow but shortfalls threaten growth

To address bottlenecks and spur growth, we need to significantly increase our use of modular and off-site construction, where feasible.

Dr. Daragh McGreal

Head Economist

KPMG in Ireland

Ireland’s housing market remains a defining challenge. House price inflation will slow in 2026, potentially to 4-5%, 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 aims 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 things 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.” – Dr Daragh Mc Greal, Head Economist, KPMG in Ireland.

Interest rates have stabilised and Government finances in strong position

Major central banks in Europe have paused their rate-cutting cycles with the exception of the Bank of England. KPMG expects Eurozone inflation to be 1.6% in 2026 and ECB rates to hold. However, Ireland’s exposure to market-based rate expectations means any global financial stress could quickly raise borrowing costs. This risk is not hypothetical – market volatility remains a threat to household and business finances. If the ECB increases interest rates by 0.5%, then an average new first-time buyer could expect annual mortgage repayments to be €1,200 higher.

“Stable inflation and interest rates give Europe breathing room, but policy must be nimble and ready to support growth if external shocks emerge. The Government has proven in the past that it will step in to support businesses and households with unexpected costs. If shocks do emerge, the Government’s fiscal position means that it is in a good position to do the same again.” – Dr Daragh Mc Greal, Head Economist, KPMG in Ireland.

Labour market strength in uncertain world

Ireland has got used to record jobs growth and falling joblessness. These trends are slowing.

Dr. Daragh McGreal

Head Economist

KPMG in Ireland

Wage growth is robust across most sectors, especially construction, hospitality, and professional services. On average it will be 3% in 2026. Employment growth remains positive but will slow to 1.5%, which is still a healthy signal. The unemployment rate rose in 2025, ending the year at higher than 5%. The uptick last year can be linked to demographics, migration, and AI. This year, we will see the rate settle at ~5%.

“Ireland has got used to record jobs growth and falling joblessness. These trends are slowing. We are seeing a normalisation to Eurozone levels. And AI is really starting to aid productivity in some sectors in Ireland. The big opportunity is maximising AI access across the economy.” – Dr Daragh Mc Greal, Head Economist, KPMG in Ireland.

Ireland’s geopolitical and strategic risks are escalating

Global trade tensions, US tariffs, and competition from China are reshaping the outlook for both Ireland and Europe outlook. While Ireland is fortunate that only 3% of our exports are exposed to US tariffs, Eurozone peers’ exposure is higher, and this is dampening growth. Europe’s next big risk is its reliance on China for critical raw materials and the energy transition.

“Europe is at a geoeconomic crossroads and must recognise that supply chain vulnerabilities and strategic competition are immediate risks to growth and stability. If EU policymakers fail to act, Europe risks falling behind in the race for economic security, as it already has done on innovation.” – Dr Daragh Mc Greal, Head Economist, KPMG In Ireland.

Get in touch

Interested in unlocking the full potential of your business? Connect with us today to explore how our strategic services can empower your organisation. Our experienced team offers tailored solutions to help you navigate challenges and foster sustainable growth.

Don't hesitate—take the first step towards shaping a successful future by reaching out to us now. We're here to support your journey.