New forecasts released today (Tuesday 21 April) reveal where the Irish economy stands – and what risks loom on the road ahead.
Tánaiste Simon Harris and Minister Jack Chambers today published the government’s report Annual progress report For the year 2026.
the Annual progress report The APR is referred to as “an important milestone in Ireland’s annual economic and financial cycle” and forms an essential part of Ireland’s participation in the European Financial Framework.
The report sets out the Ministry of Finance’s latest macroeconomic and financial forecasts for the remainder of the decade.
This provides an evidence-based assessment of where the Irish economy stands today and the risks the economy faces in the future. The publication of this report comes at a time of increasing global uncertainty High fuel prices Caused by the war in the Middle East.
It identifies three different scenarios – the baseline, the negative scenario, and the critical scenario – under which expectations vary depending on factors such as the depth and duration of the conflict.
Economic statement
“The turmoil in the international environment is a reminder of the importance of keeping our approach to overall budget policy balanced and sustainable over the medium term,” Tánaiste and Finance Minister Simon Harris stressed.
“Policy formulation for Budget 2027 It will be implemented over the summer, and appropriate fiscal policy will be considered as part of the plan Summer economic statement” He concluded.
Meanwhile, Minister for Public Expenditure, Infrastructure, Public Service Reform and Digital Transformation, Jack Chambers, said: “Ireland has successfully overcome many challenges over recent years, and the economy continues to perform strongly with further growth expected across different scenarios.
“To ensure that we are in a position to continue delivering capital investment and public services, it is important that we implement our fiscal policy as set out in the medium-term plan.”
Agriculture sector
The government decided to increase the government spending ceiling for this year by 0.7 billion euros, to 118.5 billion euros.
This reflects the government’s response to global economic developments and the impact of increased fuel costs included in the agreement on a package of measures to support the transportation, agriculture and fisheries sectors that are facing rising energy prices this month.
By reducing customs duties on both petrol and diesel, the government “smoothed the transition from high wholesale to retail prices.”
The report notes that “this burden-sharing was complemented by other support mechanisms, including an extension of the fuel allocation season and targeted measures for the sectors most at risk.”
The total cost of these measures is budgeted at 750 million euros this year.
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- The general government surplus is expected to reach 9.2 billion euros this year;
- Tax revenues are expected to reach €110.8 billion in 2026. (Nearly one-third (€35.3 billion) of the revenue stream comes from the corporate sector);
- Consumer price inflation is expected to average 3.3% this year, about 1.5 percentage points higher than expected in the department’s fall forecast.
- Adjusted domestic demand is expected to rise by just over 2% this year, and by another 3% next year;
- Consumer spending is expected to grow by 2% this year – a downward revision of 0.3 percentage points relative to the fall forecast;
- National income is expected to rise at an average rate of about 2.75% annually between now and the end of the decade.
Energy prices
According to Annual progress report:
- Oil prices (Brent crude) are supposed to average around $83 per barrel this year, then fall to less than $73 per barrel next year.
- Wholesale gas prices are expected to average around £1.20 per heat for the rest of this year;
- Gas prices are suggested to average around £0.90 per heat next year.
Taxes
- Tax revenue this year is expected to reach €110.8 billion, an increase of €5.1 billion (4.8%) compared to last year.
- Regarding direct taxes, income tax revenues are expected to amount to €38.9 billion, an increase of €2.4 billion (6.5%);
- Corporation tax is expected to generate €35.3 billion, an increase of €2.3 billion (7.1%);
- On the indirect side, VAT revenues are expected to reach €23.6 billion; This represents an increase of €0.7 billion (just over 3%);
- Customs duties are expected to reach 6.2 billion euros; This is down on last year by €0.2 billion (3.6%), mainly reflecting temporary reductions in wholesale oil prices to retail prices for gasoline and diesel.
Budget balance
Data published by the Central Statistical Office (CSO) shows that a major budget surplus of €11.2 billion was recorded last year.
A general government surplus of €9.2 billion is expected for 2026.
While the treasury deficit is expected to reach 1.2 billion euros by 2026.
For this year, general government revenues are expected to reach €153 billion, and general government expenditures are expected to reach €143.8 billion.
Primary spending (total spending excluding debt interest payments) is estimated at €140.5 billion, with interest spending at around €3.3 billion this year.
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Total public debt is expected to reach 208.1 billion euros by the end of this year, equivalent to 58% of gross national income.
This represents an important milestone because it will be the first time since 2008 that the debt-to-income ratio will be below 60%.
The debt-to-income ratio is expected to decline further over the forecast horizon, with nominal economic growth doing much of the heavy lifting.
Global aspect
Geoeconomic and geopolitical issues “will play a major role in shaping the Irish economy this year and next,” the report said.
Although developments in the Chinese economy are not a major export market, they could have knock-on effects on the Irish economy.
According to the report, the EU faced a trade deficit of more than €350 billion with China, with the increase in Chinese exports sometimes referred to as the “second China shock.”
This puts significant pressure on European companies, including automotive companies, green technology and advanced manufacturing sectors.
European companies face an uneven playing field:
- They receive much less state support (an IMF analysis estimates that state aid in China amounts to 4.4% of GDP; its European counterpart is about 1.5%);
- It has more stringent regulations;
- It faces higher production costs than its Chinese competitors, leaving it vulnerable to continued erosion of market share.
Conflict in the Middle East
The global economy is facing the second major energy price shock in less than five years.
According to the report, “Similar to the price dynamics resulting from the Russian invasion of Ukraine, the current increase in energy prices reflects developments on the supply side.”
“In Ireland and the rest of Europe, the imbalance between supply and demand is reflected in rising energy prices; in parts of Asia, the imbalance is reflected in energy rationing,” the report said.
“Byproducts from oil refining and liquefied natural gas (including ammonia, urea and helium) are in short supply, and this supply-demand imbalance could trickle down to non-energy prices (particularly food prices) as higher input costs reach the source,” the report warns.
The report also states that “about a fifth of global oil and liquefied natural gas supplies pass through the strait.
“Closing this choke point led to a 60% increase in wholesale oil prices in March, the largest monthly increase in decades,” the report acknowledged.
While energy commodity prices are the main channel through which global economic activity is affected, the report details that “spillovers to other supply chains appear inevitable with about a third of global fertilizers passing through the Strait.”
The report also states that “the euro area, as a net energy importer, is particularly vulnerable to a terms of trade shock, and a higher energy import bill is expected to weigh on activity this year.”
