ESRI'S MEDIUM TERM PROJECTIONS FOR IRISH ECONOMY

The Challenges that we must face up to

As we approach the end of another successful year for the Irish economy and look ahead to 2026, we can do so with a reasonably high degree of confidence, peppered with a realistic dose of caution. Given the turmoil, volatility and uncertainty generated by the utterances and actions of President Trump, it is quite a feat to be able to describe 2025 as another good year for the economy. The fact that the economy did well once again is testament to the resilience of Irish business and its workforce. This is particularly the case for SME owners who seem to largely survive despite rather than because of government policy. For the SME sector, Budget 2026 did little other than add to its cost base next year, but hopefully the bulk of SMEs will survive next year, but some casualties seem inevitable in the face of an incessant rise in their cost environment.

A couple of weeks ago the Department of Finance published a report demonstrating clearly Ireland’s fiscal vulnerabilities. There were no earth-shattering or new revelations, but it did summarise very nicely the concentration risk in the Irish economy. The headlines are stark for 2024 – 88 per cent of tax revenues flowed from VAT, Income Tax and Corporation Tax; 57 per cent of corporation tax derived from 10 multinationals; manufacturing accounted for one third of corporation tax and is 97.6 per cent multinational; ICT accounted for one fifth of corporation tax and is 99.7 per cent multinational; and finance accounted for one seventh of corporation tax and is 84.2 per cent multinational. The top 10 per cent of earners contributed 40 per cent of income tax and 60 per cent of USC. I could go on, but our inordinate dependence on foreign-owned companies is obvious. This is why what trump says and does really does matter; why investment in all forms of infrastructure mis essential; and why Ireland needs to preserve its status as a good country in which to do business. That is now under considerable pressure.

On Friday, the ESRI published its latest medium-term outlook, which outlines possible growth scenarios out to 2025. As an economist I learned many years ago that economic forecasting is a waste of time on a one-year time horizon, not to mention a ten-year horizon. Despite these reservations, it is a useful exercise to provide macroeconomic projections and scenarios of potential future paths for the economy over a ten-year horizon. The ESRI was quick to point out that it is not a forecasting exercise, but rather projections of what might happen subject to a broad range of underlying assumptions.

The central baseline scenario projects an annual average economic growth rate of 2.3 per cent in modified gross national income (GNI*) out to 2030 and 2.1 per cent from 2031 to 2035. Such an outcome would describe a mature economy delivering solid levels of growth. If things were to turn out like this, then we will be able to look back in ten years’ time on a good decade for the economy.