Irish economy continues to perform well
Ireland’s economy continues to perform well, underpinned by supportive monetary and fiscal policies, rising incomes and strong export performance. However, it remains vulnerable to global developments, including geopolitical tensions and shifts in the foreign direct investment (FDI) landscape, which could threaten economic stability.
Domestic demand, driven by accommodative policy and increased incomes, continues to grow.
Modified domestic demand (MDD) is forecast to have grown by around 2.5% to 3.2% in 2024, despite the relatively poor GDP performance. MDD growth of 3% to 4% is forecast for 2025, with long-term forecasts indicating growth close to 3% per annum to the end of the decade. The Central Bank of Ireland (CBI) notes that the government’s budgetary stance continues to add demand to the economy. This, combined with loosening monetary policy and increases in disposable income, are major drivers of MDD growth. Exports from the FDI-dominated sectors of tech and pharma are also contributing to economic growth.
Inflation remains sticky across the major developed economies.
The euro area’s inflation rate increased slightly to 2.2% in November, while the US experienced a slight uptick to 2.7%. The UK’s inflation rate was also elevated at 2.6%. Forecasts suggest that while inflation will continue to decline, it may remain above 2% beyond 2026, with euro area inflation expected to land closest to the target rate over the period.
An increasing trend in the public sector vacancy rate may be cause for concern.
Data indicates that the rise in the public sector vacancy rate is primarily driven by vacancies in the public administration sector, which accounted for 22% of all vacancies in Q3 2024. Ongoing vacancies will affect the ability of various public agencies to perform their functions. For example, the shortage of planners and its implications for the timely processing of planning applications has been well publicised. A large pipeline of essential capital projects, from offshore wind to housing, requires processing through numerous public agencies at various stages. Various quarters of society have called for a significant increase in public sector headcount in critical areas. Persistently higher vacancy rates in the public sector may point to difficulties in attracting the right talent for these critical roles.
Ireland’s corporation tax revenues have grown dramatically in recent years, while also becoming more concentrated.
Corporation tax revenues increased substantially from €11 billion in 2019 to €23 billion in 2023, but this growth has been characterised by higher concentration. The top ten companies accounted for more than half of all corporation tax revenues in each of the past four years. These receipts, which make up a significant proportion of Ireland’s budget surplus, are subject to risks outside of government control.
Ireland is particularly dependent on FDI compared to much of the OECD.
Given the central role of foreign direct investment (FDI) in Ireland’s economy, it is useful to compare Ireland’s FDI intensity with other developed countries. Ireland’s stock of inward FDI, as a percentage share of GDP, amounted to 256% in 2023. This places Ireland second only to Luxembourg in terms of FDI intensity within the OECD, with an intensity five times greater than the OECD average of 53%. Ireland’s success in attracting FDI is built on decades of stability and policy certainty, competitive tax policy, openness to trade and widespread access to higher education. Ireland’s longstanding membership of the EU, combined with its historic and cultural ties to the US, connects a single market of some 450 million consumers to the world’s largest economy.
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PwC Quarterly Economic Digest — Q1 2025
Explore the forces driving the Irish economy’s performance.
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