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Ireland’s labour market materially loosened in Q3. Yet, while the unemployment rate rose and employment growth slowed, the Irish jobs market remains tight by historical standards. The labour force also continues to grow strongly, which accounts for part of the unemployment rate rise. Overall, Q3’s weakening isn’t necessarily a bad thing for Ireland’s economy. A slightly looser labour market should lower the risk of higher inflation from persistently high pay growth. In any case, we expect employment figures to pick up again, which should prevent a more material rise in the unemployment rate ahead.
Ireland’s labour market slackened, but no need to worry
Employment growth in Ireland slowed in Q3, down to 1.1% y/y from 2.3% y/y in Q2. After a surge earlier this year, there was always the expectation the measure would slow after this exceptionally strong start.
However, on a seasonally adjusted basis, employment grew just 0.1% in Q3, while growth in Q2 was revised down to 0% from 0.1%. This weak employment growth prompted the seasonally adjusted unemployment rate to jump to 5% in Q3 from 4.6% in Q2. However, much of this was due to an expanding labour force, which increased by 0.5% on the quarter, supported by high levels of migration.
Either way, the labour market materially loosened in Q3, but we do think employment growth should recover to around 1.5% y/y next year. The jobs market remains tight by historical standards, so some moderation will help to avoid Ireland’s jobs market overheating and weigh on pay growth. This will help to lower the upside risk to inflation.
Economy clearly slowed in Q3
The latest labour market data confirms that the economy remained subdued in Q3. It matches the signal from the revision-prone preliminary GDP estimate, which suggests the Irish economy contracted over the summer. We expect the official GDP figures to confirm this, but suspect domestic demand (MDD) has held up better.
A weaker labour market will help to lower the risk of higher domestically generated inflation from strong wage growth. But, on balance, we continue to think the labour market remains a source of inflationary pressure, especially as employment growth recovers while tariff uncertainty fades. This will support services inflation of around 3% throughout 2026.
Overall, we expect Ireland’s labour market to continue to moderate over the coming quarters. A recovery in employment growth from its stagnation in Q2 and Q3 should prevent a more significant rise in the unemployment rate. Indeed, the monthly data, while somewhat unreliable, suggests the unemployment rate fell to 5% in October from 5.1%.
That said, Budget 2026 introduced from 1 January auto-enrolment for around 750,000 employees who don’t have an existing pension. This rise in employment costs could keep employment growth subdued for a while as firms adjust to higher costs. Contributions will start at a relatively low level and rise incrementally, which should soften the impact on hiring.
All told, Ireland’s labour market weakened in Q3, but that pace of loosening won’t be maintained. Another big increase in government spending early next year will support robust domestic demand. We continue to expect employment growth of around 1.5–2% next year.
