Economic growth forecast for island of Ireland despite fuel supply turbulence

By Gráinne Ní Aodha, Press Association

Economic growth is expected to continue across the island of Ireland this year, but at a slower pace because of a fuel crisis triggered by the war in Iran.

The EY Economic Eye forecast, published on Tuesday, analysed the economies in Ireland and Northern Ireland amid turbulence prompted by the attack from US President Donald Trump’s administration and Israel on Iran.

Consultancy firm EY is forecasting Ireland’s inflation rate at 3.1 per cent and Northern Ireland’s at 0.7 per cent for 2026; while in 2027 it is expected to be at 2.4 per cent for Ireland and 1.3 per cent for Northern Ireland.

Inflation in Ireland is to increase because of the conflict in the Middle East and the shutdown of the vital trading route, the Strait of Hormuz, through which a fifth of oil supplies travel.

If 2025 was the year of US tariff uncertainty, then 2026 is the year of global energy volatility

EY has said events in the Middle East had “adversely affected” Ireland’s inflation outlook.

“While some price pain is already being felt by households and businesses, the inflationary shock to date is less severe than that experienced following the invasion of Ukraine,” it said.

“However, energy prices remain a key downside risk to growth, with the duration of the conflict likely to strongly influence the impact on both the Irish and global economy.”

Meanwhile, the Irish jobs market is expected to grow, and consumer spending is expected to continue.

EY said employment growth would ease in 2026 and 2027, reflecting “more cautious hiring intentions,” but unemployment would remain low by historical standards at 5 per cent in 2027.

The EY also forecasts Irish GDP to grow 1.8 per cent in 2026 and 4.2 per cent in 2027, with modified domestic demand – a better measure of the domestic economy – to rise by 2.7 per cent in 2026 and 2.5 per cent in 2027.

Northern Ireland’s economy continues to show resilience, but growth is increasingly constrained by global volatility, impacting costs, confidence and investment decisions

The Northern Ireland economy is also forecast to grow this year and next, at a slower rate than south of the border, with jobs expected to grow at 0.6 per cent for 2026 and 2027.

“Northern Ireland’s economy continues to show resilience, but growth is increasingly constrained by global volatility, impacting costs, confidence, and investment decisions,” said Rob Heron, managing partner at EY Northern Ireland.

“Understanding how global tensions, trade arrangements, and policy choices affect local businesses is becoming more important for business leaders and policymakers in Northern Ireland as they plan for the future.”

Dr Loretta O’Sullivan, chief economist at EY Ireland, said: “If 2025 was the year of US tariff uncertainty, then 2026 is the year of global energy volatility.

“Having navigated the former well, the Irish economy is now being challenged by the latter.

“Last year saw a very strong performance by the Irish economy, beating all forecasts, and it is only to be expected that this would unwind somewhat in 2026.

“Combined with the impact of the conflict in the Middle East on the global energy market and the world economy, we are projecting more moderate but still decent growth this year, something many of our peer nations will not be expecting.

“Consumer spending is a key indicator of the health of the domestic economy, and even with the significant energy price impact, we are still forecasting this to increase this year and next.”

For organisations, geopolitics is no longer an intangible risk, it’s directly influencing strategy, supply chains, investment, talent and resilience in real time

EY Ireland head of markets Carol Murphy said: “In today’s volatile environment, businesses are navigating conflict on three interlinked fronts, with military, economic, and technological challenges directly shaping commercial and strategic decisions.

“For organisations, geopolitics is no longer an intangible risk; it’s directly influencing strategy, supply chains, investment, talent, and resilience in real time.

“For leadership teams, the challenge is less about predicting what happens next and more about building the agility and capability to act when conditions change.

“For policymakers, building resilience across the economy will be central to helping Ireland navigate today’s uncertainty and remain an attractive and trusted place to invest, innovate, and do business.”