Rising wages and easing inflation will spell good news for Irish workers over the next two years, but analysts caution that risks to continued growth are increasing at the same time.
Increasing numbers at work, higher tax takes and slowing price rises all indicate that the Irish economy will grow this year, according to stockbroker Davy.
“We expect a continued strong performance for the economy in 2025 and 2026,” says a report written by the firm’s chief economist, Kevin Timoney, and analysts Diarmaid Sheridan and Colin Sheridan.
They predict that gross national income, which measures total wealth generated by Irish workers and businesses but excludes profits taken out by multinationals, to increase by about 4 per cent in both 2025 and 2026.
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Workers can expect pay to grow about 3 per cent in both years, says the report, due to be published on Monday morning.
At the same time, the rate at which prices are increasing will continue to slow following several years of punishing inflation, slipping to between 1 per cent and 1.5 per cent over the next two years from 1.6 per cent now.
Growing employment is helping to boost earnings for those in jobs. Recent figures published by the State’s Central Statistics Office show that there were 2.8 million at work in the Republic at the end of September, up 2.8 per cent.
Davy expects those numbers to continue to increase, by 2 per cent next year and 2.1 per cent in 2026.
Shoppers are likely to spend more against this background. Davy calculates that consumers will spend 4 per cent more this year than in 2023, lower than an original forecast of 4.8 per cent.
However, they acknowledge that experts have underestimated consumer spending in recent years. In 2023, Irish people were predicted to boost their spending by 3.1 per cent, but the actual figure was 4.8 per cent.
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Davy argues that VAT, levied on goods and services bought by consumers, and Central Bank of Ireland card payment data, are better guides to how much people are spending.
House prices will have grown 8.5 per cent by the end of this year. The ongoing lack of homes and pent-up demand will add 7 per cent to this next year and a further 5.5 per cent in 2026.
Higher earnings for those aged between 30 and 39, who make up many first-time buyers, will also contribute to rising property values, says the Davy report.
However, its authors also warn that Donald Trump’s re-election as US president has increased uncertainty.
“Greater protectionism and the prospect of a trade war between the EU and the US are now clear risks,” they say.
“Ireland’s economy could also be negatively impacted by many of the proposed policy changes featured in the election campaign, including the imposition of blanket tariffs by the US.”
Those could amount to blanket 10 per cent or 20 per cent charges on Irish exports to the US.
The report shows that those exports are mainly made up of the pharmaceuticals responsible for bumper returns from taxes on company profits in recent years.
“It is a clear risk that US foreign direct investment-paid corporation taxes in Ireland could decline if pharmaceuticals exports are redirected as a result of tariffs,” Davy acknowledges.
“Furthermore, there could be a significant impact on non-pharmaceuticals exports.”
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