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.

Inflation & living costs are eroding incomes

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.

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.

House price growth to slow but shortfalls threaten growth

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.

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.

Labour market strength in uncertain world

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. AI is starting to aid productivity in some sectors in Ireland. The big opportunity is maximising AI access across the economy.

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.

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