Decisions made in the latest Budget are expected to reduce disposable incomes for many Irish households, according to the Economic and Social Research Institute (ESRI). The institute said middle and higher-income earners are particularly affected by the freezing of income tax credits and bands, as well as the removal of temporary cost-of-living supports, resulting in an estimated 1.3% decline in take-home pay.
In its new forecast, the ESRI said the Irish economy continues to grow strongly but is likely to see slower expansion next year. Employment growth is expected to moderate, with unemployment rising slightly from 4.8% in 2025 to 5.2% in 2026. The domestic economy is forecast to grow by 2.1% in 2026, down from an estimated 4% this year. The institute noted that this reduction does not indicate an underlying slowdown but reflects a temporary surge in investment in 2025 that will not be repeated.
Gross Domestic Product (GDP), which includes contributions from multinational corporations, is projected to expand by 5.7% in 2026, following a significant 13.1% increase this year. The growth this year has been supported by strong exports, although the ESRI noted that the tapering of tariffs imposed by the Trump administration has begun to moderate export gains.
Housing supply is expected to remain constrained. The ESRI has left its forecast for new home completions this year unchanged at 35,000, and predicts 36,000 homes will be built in 2026. Conor O’Toole, an ESRI economist, said that more than 50,000 homes per year would be needed to meet demand, highlighting a continued gap between supply and housing needs.
The ESRI also examined the potential impact of artificial intelligence on the Irish labour market. O’Toole said that Ireland faces heightened risks due to the presence of large multinationals with significant AI investments. Companies may adopt labour-replacing technologies, potentially affecting employment levels. In the event of an AI investment bubble bursting, retrenchment by tech firms could also reduce corporate tax revenues from multinationals, adding pressure to public finances.
On environmental issues, the ESRI highlighted progress in decoupling economic activity from industrial emissions but noted limited evidence of similar progress in the transport sector. The institute reiterated concerns about Ireland’s reliance on volatile corporate tax revenues and warned that recent fiscal loosening was “at odds with the current state of the business cycle,” suggesting policymakers face challenges in maintaining fiscal stability.
The ESRI’s analysis underlines the balancing act facing Ireland’s economy in 2026: households confronting reduced disposable incomes, slower domestic growth, housing shortages, and potential risks from technology investments, all amid ongoing fiscal pressures.
