Irish Economy Faces Slower Growth, AI Impact, and Data Centre Boom
Ireland's economy is projected to grow by 3 percent this year, despite inflation and a faltering IT sector, partly due to a data center boom. Fiscal policy tightening and targeted welfare support are recommended. Long-term growth is expected to slow to 2 percent annually, necessitating higher taxes for public spending.
Reports from the Central Bank, ESRI, and Irish Fiscal Advisory Council recommend tighter fiscal policy and saving corporation tax revenue for future crises. Despite global economic difficulties, Ireland's economy is projected to grow by 3 percent this year, exceeding EU neighbors, assuming the Strait of Hormuz reopens quickly. However, the Gulf war will increase inflation this year and next, leading to slightly lower household income in 2026 than in 2025, with recovery in 2027. Welfare recipients will be worse off due to higher energy prices.
Growth in the IT sector, which contributed about a tenth of Ireland's output and employment since 2013, is faltering. This reflects lower IT employment and wage rates in 2024 and this year, likely reducing immigration. The small fall in the sector’s wage bill will slightly impact tax revenue. This reduction in IT employment may be an early sign of AI's economic influence, as tech companies cut jobs to fund AI investments.
The pharma sector, anticipating Trump tariffs, saw a boom in US exports last year and expects steady but slower employment growth in 2026. Consumption is forecast to rise by 2 percent this year, less than overall economic growth. A rapid increase in investment, particularly in data centers and related infrastructure, will drive overall growth to 3 percent. Data center investment has significantly impacted construction and employment, with imports of equipment increasing 170 percent since 2023, now accounting for 13 percent of Irish imports. While data centers boost capital stock, they offer very low operational employment and do not increase IT employment.
The Central Bank forecasts Irish growth to slow to about 2 percent annually until 2050. To address an aging population and climate change, increased public spending will require higher taxes and a broader tax base. The next budget should focus on targeted energy assistance for low-income households with high energy bills, rather than renewing broad, regressive packages like the April energy package.