Ireland's Economy Set to Outperform Europe in 2026 Despite Housing and Infrastructure Pressures
Ireland is on course to be one of Europe's top-performing economies in 2026, with KPMG forecasting GDP growth of 3% and Modified Domestic Demand expansion of 2.5% — but persistent housing shortages, infrastructure bottlenecks, and a high cost of living continue to threaten the country's long-term competitiveness.
Background
Ireland's economy has consistently outperformed its European peers in recent years, driven by strong multinational investment, robust consumer demand, and a healthy labour market. The country's corporate tax revenues have been boosted by the implementation of a new minimum effective tax rate for large corporations, providing the government with significant fiscal headroom.
Key Developments
KPMG's latest forecast projects Irish GDP growth of 3% for 2026, with Modified Domestic Demand — a measure that strips out the distorting effects of multinational activity — expanding by 2.5%. The Irish labour market remains strong, with an unemployment rate expected to settle around 5% and wage growth averaging 3%. Government finances are healthy, supported by strong corporate tax revenues.
However, the Taoiseach has emphasised the need for "fiscal sustainability" amid global economic uncertainty, while the Tánaiste has indicated a focus on income tax packages. The government announced a new package of measures on Tuesday related to fuel costs and support for the transport, farming, and fisheries sectors, following protests by slow-moving tractor convoys over high fuel prices.
Housing remains the most pressing domestic challenge. Dublin City Council announced plans to borrow €36.5 million to fund additional affordable homes at the O'Devaney Gardens development, ensuring the units will not be sold on the private market. However, Limerick councillors voted to halt a 500-unit modular home project in Boro Park, reflecting ongoing local opposition to large-scale housing developments. Persistent infrastructure bottlenecks, particularly in transport around the Greater Dublin area, are increasing logistics costs and threatening to erode real income gains.
Why It Matters
Ireland's economic strength is a double-edged sword. While strong growth and employment are welcome, the high cost of living — with notable inflation in groceries and housing — is eroding quality of life for many residents. The country's reliance on a small number of multinational sectors for a large portion of its tax revenue also represents a structural vulnerability, particularly as global trade tensions and US tax policy evolve.
What's Next
The government's budget planning for 2027 will be shaped by the Taoiseach's emphasis on fiscal sustainability. The housing crisis is expected to remain the dominant domestic political issue, with further planning reforms and investment announcements anticipated in the coming months.
Sources: KPMG Ireland; The Irish Times; Gov.ie
