Ireland’s economy has remained steadfast throughout the first half of the year, despite US tariffs causing uncertainty to surge. The domestic economy has grown around 3% so far this year as households shrugged off concerns around tariffs and continued to spend, which has supported growth.  

Sustained economic growth has also helped to support employment, which is growing at 2.3% y/y. This has helped strengthen the public finances by growing the tax base and minimising the number of people in need of state assistance. 

The economy therefore stands in a good position heading into Budget 2026, despite the risks from tariffs and the associated uncertainty that could slow investment and consumer spending and drag on growth for the rest of the year.

Looking now at public finances, Ireland remains in a position of strength. The national debt is currently 34.9% of GDP, which is less than half the EU average. The government is also one of only a handful of developed countries that runs a budget surplus. 
Indeed, thanks to years of much faster economic growth and multinational corporations the Irish fiscal position is in stark contrast to the UK. The debt to GDP in the UK is almost 100% and the budget deficit is likely to be around 4% of GDP this year. What’s more, as a result of weaker-expected economic growth in the future, the UK budget, scheduled for 26 November, is likely to see another round of significant tax increases. 

That said, without Ireland’s huge corporate tax take, the public finances are fragile. If we exclude excess corporation tax receipts, which are largely due to the US multinationals reporting profits in Ireland, then we estimate the nation’s public finances would’ve been in deficit every year since 2018. 

Clearly, the big risk here is if the US administration pursues policies designed to discourage companies from reporting profits abroad. However, the “Irish model” is clearly working. Real GDP growth has averaged 6% - 7% since 2010 compared to less than 2% in the UK and absent more aggressive US trade policies, growth should continue to outperform in the future. At the very least, Ireland’s low debt-to-GDP ratio would certainly give the government some cushion against any potential revenue loss. 

Back in July, the government’s Summer Economic Statement announced preparations for a €9.4bn fiscal expansion at Budget 2026. It prompted Governor of the Central Bank of Ireland, Gabriel Makhlouf, to warn that “for an economy operating at full employment, we’re adding more stimulus to the economy than it needs”. There are three reasons why we agree with Governor Makhlouf. 

First, as Governor Makhlouf points out, the economy is at full employment. The unemployment rate, while creeping up, remained at 4.6% in Q2. In any case, this remains low by historical standards. With the share of people aged 25–54 in employment also at a record high, there’s a risk that further stimulus in the economy could overheat the labour market, which would push up wage growth and, in turn, inflation. 

Second, growth is already running at potential. Indeed, growth in Modified Domestic Demand (MDD) terms has averaged almost 4% y/y so far this year. This is in line with Ireland’s long-term trend. Further expansionary measures risk pushing growth beyond its economic ‘speed limit’, which would also be inflationary.

Third, the European Central Bank (ECB) has been cutting interest rates for over a year now. With the key deposit rate standing at 2%, this is unlikely to be restrictive enough to weigh on inflation given Ireland’s economic strength. Alignment between the ECB’s monetary and Ireland’s fiscal policy is no doubt good for growth. However, we think the government needs to exercise a degree of fiscal restraint in Budget 2026 to avoid an unnecessary rise in inflation. Ireland is, after all, an outlier in the eurozone for its economic fundamentals.

Ultimately, the government needs to be careful. The economy doesn’t need further stimulus at a time when the economy is operating at its potential and interest rates are not particularly restrictive. Big spending increases and near-term tax cuts risk overheating the economy and pushing up inflation. However, there are clearly key areas where the government would be wise to invest as this could help to boost the long-term growth rate of the economy and close the gap with other comparable nations.