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Bank of Ireland has trimmed its forecast for economic growth in 2026, pointing to a slightly slower pace of expansion than previously expected.

In its latest economic outlook, the bank now expects Gross Domestic Product to increase by 2.8% this year, compared with an earlier projection of 3.1%. GDP figures capture activity from multinational firms as well as domestic businesses.

Alongside this, the bank has reduced its estimate for modified domestic demand, a measure regarded as a clearer reflection of underlying activity within the Irish economy. MDD is now forecast to grow by 2.3% in 2026, down from a previous expectation of 2.6%.

The bank said the downward adjustment reflects the unwinding of front-loaded trade activity linked to US tariff concerns. It also noted that new pharmaceutical production facilities and strong demand for weight-loss medications are expected to contribute to a lasting upward shift in GDP over the medium term.

The report cautioned that a sharper reversal in Irish goods exports to the United States, following a 60% surge during 2025, could result in negative GDP growth, depending on the scale of the pullback.

While the outlook for 2026 has softened, Bank of Ireland has revised upwards its estimate for economic growth in 2025. GDP is now believed to have grown by 11.2% last year, compared with a previous estimate of 10.7%.

Looking ahead, the bank forecasts employment growth of 1.5%, with unemployment edging up gradually towards 5%. Residential property prices are expected to rise by approximately 4%.

Group Chief Economist Conall MacCoille said the projections suggest the economy is moving towards a more sustainable, though still robust, rate of growth. He highlighted continued momentum in construction activity and public investment, even as employment growth moderates.

He also pointed to Budget 2026 as a meaningful support for the economy, particularly through increased capital spending, which is expected to help counter uncertainty affecting private investment decisions.

However, Mr MacCoille warned that a range of external risks remain, including geopolitical tensions, trade disruption, tariff policies, stretched equity market valuations and concerns around the independence of the US Federal Reserve.

He added that elevated household savings levels and subdued business sentiment indicate that uncertainty is already influencing spending patterns and hiring decisions. While many of the challenges facing Ireland originate abroad, he said domestic issues such as competitiveness pressures and infrastructure constraints could increasingly limit economic performance.

A further uncertainty identified in the report is the true extent of the slowdown in job creation during the past year, particularly in consumer-facing sectors such as retail and hospitality, where wage costs appear to be weighing on activity.

Mr MacCoille concluded that, in light of the uncertain outlook, progressing the Government’s Accelerating Infrastructure Report and Action Plan will be critical to delivering the €106 billion National Development Plan.

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