Growth is in prospect for the two economies on the island of Ireland in 2025 and 2026 alongside more jobs according to the latest EY Economic Eye forecasts. In the Republic of Ireland, record high employment, strong tax receipts, and low inflation all point to an economy in good shape notwithstanding persistent global headwinds. In Northern Ireland, EY forecasts steady growth.
The Northern Ireland data points to a relatively solid jobs market but also muted private sector activity as businesses continue to deal with pressures at home and global headwinds. The economy is forecast to register growth this year of 1.3% and 1.2% next year.
Growth in prospect for Northern Irish Economy
The Northern Ireland jobs market has performed well this year so far, and consumer sentiment has improved, helped by falling interest rates. The Bank of England has delivered three quarter-point cuts in 2025, and more are expected next year as inflation in the UK gradually declines, taking the Bank Rate to 3.50% by the end of 2026. This should offer some welcome support to business investment as well as household consumption in the period ahead.
Rob Heron, EY Northern Ireland Managing Partner says:
“It’s good to see that economic growth is in prospect for Northern Ireland, bringing more employment. Workforce jobs in the region hit an all-time high in the second quarter of this year, but there is no room for complacency, especially around skills. As we look to the future, a sustained policy focus on meeting evolving needs will be needed, particularly for skills that support the digital and green transitions.”
The Irish economy continues to perform strongly in what remains a challenging global environment, despite uncertainty abating somewhat with the recent EU/US trade deal. Exports and GDP were boosted in the first half of 2025 by activity being brought forward to beat the introduction of US tariffs, but some of this will unwind. Looking past these distortions, it’s clear the domestic economy is holding its own, with consumers spending apace and the number of people in employment posting a fresh high.
Growth momentum is likely to soften in the period ahead, however, as households and businesses adapt to the changing external environment. So, after rising by 9% this year, EY expects GDP to increase by 3.3% in 2026.
Modified Domestic Demand, which focuses on the domestic economy, is expected to grow by 3.2% this year and 2.6% in 2026. EY projects employment growth in the Republic of Ireland of 2.2% this year and 1.8% next year, and although the unemployment rate is projected to edge up to 4.8% in 2026, this remains low by historical standards.
While policy shifts in the US have unsettled households on both sides of the Atlantic in recent months, consumer confidence in the Republic of Ireland is showing signs of stabilisation and spending is expected to increase again in 2026 as wages go up and inflation remains low.
Our EY forecast sees headline inflation in the Republic of Ireland settling at the 2% mark this year and next. As anticipated, services inflation has continued to decelerate. Conversely, food price increases have gathered pace of late, adding upward pressure. The sharp appreciation of the euro will work in the opposite direction though, offering some offset further out the projection horizon.
Related: EY Economic Eye: Continued growth forecast for both economies on the island of Ireland
Dr Loretta O’Sullivan, EY Ireland Chief Economist, says:
“The Irish economy is navigating current complexities from a position of strength. The labour market is healthy, which is an important confidence factor for consumer spending, and additional funding for public capital projects will support investment over the coming years. Geopolitical tensions and the new tariff landscape are changing the operating environment for many businesses, however. And while the EU-US framework agreement provides a modicum of certainty for exporters amid all the global flux, the longer-term trend towards trade fragmentation is a challenge for Ireland’s economic model.”
“Policies to shore up competitiveness and build resilience will be important in mitigating external headwinds. Investment in innovation and infrastructure must remain a top priority. This is crucial for many reasons; to improve the quality of life for people living and working here, to provide an enabling environment for indigenous businesses and boost productivity, and of course, to maintain Ireland’s attractiveness for Foreign Direct Investment – something we must never take for granted.”
Carol Murphy EY Ireland Partner, Head of Markets: “As Ireland approaches Budget 2026, the Government has a real opportunity now to help shape the country’s long-term resilience and prosperity at a time of geopolitical uncertainty, and rapid technological change, not least in the area of AI. It is hoped by many in the business community that the Budget will include measures to further bolster Ireland's competitiveness by helping to accelerate infrastructure delivery and further strengthen our strong reputation for technological innovation and entrepreneurship. It is by coming together across Government, the private sector and academia that we will put ourselves in the best position to address national skills and capability gaps in key areas such as artificial intelligence, as we seek to future proof our economy in a world changing at pace. We must not let this opportunity for deep meaningful collaboration pass.”
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