Bank of Ireland economists predict stronger growth in GDP, domestic demand and employment for 2025.
Bank of Ireland’s latest economic forecasts for Ireland have been revised upwards.
The Bank has revised upwards projections for GDP (4.3%), modified domestic demand (4%) and employment (2.2%) growth in 2025.
“The Irish economy had far more momentum in late 2024 than excepted, recording an exceptional pace of job creation”
This reflects stronger than expected data for H2 2024, showing the Irish economy had more momentum than anticipated, and less statistical distortion related to the multinational manufacturing.
Gaining momentum
“The Irish economy had far more momentum in late 2024 than excepted, recording an exceptional pace of job creation,” said Bank of Ireland chief economist Conall Mac Coille.
“Also, beneath the statistical fog a broad range of export sectors have performed well, despite a very challenging global environment. Hence, we have revised up our forecasts for GDP growth in 2025 and domestic demand to 4.3% and 4.0% respectively. The risk to our forecasts remains a breakdown in global trade relations but far more radical tariff/tax proposals from the Trump administration would be required to harm the economy in 2025.
“Given pay growth is now exceeding CPI inflation Irish households should enjoy real income growth in 2025, aided by the Budget 2025 tax cuts, so consumer spending should rise 3% this year. Homebuilding and non-residential construction are expected to drive a 7% rise in investment. Public spending continues to grow rapidly, we have pencilled in a 5% rise in 2025. So domestic demand should make a solid contribution to GDP growth in 2024.
“A key uncertainty is whether housing completions can actually pick-up to our forecast for 42,500 for 2025, and the extent the 60,000 starts last year were artificially inflated by developers rush to commence ahead of the expiration of waivers on levies and charges. Also, we expect non-residential construction contracted for a fifth consecutive year in 2024, struggling with elevated build costs, and delaying delivery of the NDP. Bottlenecks and capacity pressures are a key problem that could hold back the Irish economy over the medium-term.
Economic forecast for 2025
Consumer Spending: Consumer spending is expected to rise by 3% in 2025, driven by a 4.5% increase in pay growth, which outpaces the 2% CPI inflation rate. Household incomes will also benefit from tax cuts introduced in Budget 2025. Additionally, housing completions are projected to reach 42,500 in 2025, contributing to a 7% increase in core investment spending. Public spending is also expected to grow by 5% in nominal terms, further boosting demand.
Export Sector Performance: Despite a challenging global environment, key export sectors such as business services (7%), information technology (17%), pharmaceuticals (36%), and traditional manufacturing (4%) have shown rapid growth in 2024. This strong performance is notable given the expected 3% contraction in euro area industrial production in 2024. Export growth is forecasted at 3.4% in 2025 and 5% in 2026.
Trade Tensions: Escalating trade tensions pose a significant risk for Ireland. Treasury Secretary Scott Bessent is reportedly considering a 2.5% universal tariff, but the direction of US trade policy remains uncertain. The US accounts for 20% of Irish exports, primarily in services and pharmaceuticals, which are less sensitive to tariffs. However, increased global trade tensions and corporate tax issues could impact Ireland’s economy.
House Price Inflation: House price inflation is forecasted to rise to 5% in 2025, up from the previous forecast of 4%. This increase is driven by rising leverage in the mortgage market following the relaxation of the Central Bank’s mortgage lending rules. In November, the average mortgage approval was €321,000, an 8% increase from the previous year.
Housing Completions: Housing completions are expected to rise to 42,500 in 2025, despite a disappointing 30,300 completions in 2024. The increase is attributed to accelerated housing starts, which reached 60,000, driven by homebuilders rushing to take advantage of expiring waivers on development levies and water infrastructure charges.
Public Spending: The Irish Fiscal Advisory Council (IFAC) has indicated that public spending growth is likely to exceed the 3% assumed in Budget 2025. Our forecasts are based on 5% growth in nominal spending. Despite this, we expect the government surplus to be €8.5 billion in 2025, or 1.5% of GNI*, with the debt/GNI* ratio falling to 66%.
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