The Department of Finance has revised down its growth outlook while anticipating a substantial rise in the Government’s surplus, reports RTE.
In its Spring Economic Forecast, the Department stated that a general government surplus of €9.2bn is expected, an increase from the €5.1bn figure forecast on Budget Day last year, reports RTE.
This rise is attributed to factors such as stronger corporation tax intake, increased revenue in the social insurance fund, and reduced spending by entities outside central government departments, including local authorities.
The Department is projecting an Exchequer deficit of €1.2bn for 2026, in contrast to the €7.1bn surplus recorded last year, reports RTE.
The deficit is connected to planned transfers into the Government’s Future Ireland Fund and the Infrastructure, Climate and Nature Fund.
According to the projections, the economy, measured by Modified Domestic Demand, is expected to grow by 2.1% this year, reports RTE.
This marks a downgrade from an earlier forecast of 2.3%.
The Department indicated that without the Iran conflict, growth would have been revised upward to between 2.5% and 3%, reports RTE.
The forecast also points to inflation reaching 3.3% in 2026.
It outlines three possible scenarios depending on the severity and duration of the Iran conflict, reports RTE.
Under a “severe” scenario, oil prices could surge to $130 per barrel this year, inflation may climb to 4.6% this year and 5.3% next year, and modified domestic demand could slow to 1.5% in 2026.
Across all scenarios, the Irish economy is expected to keep expanding, though at a more moderate rate, reports RTE.
Tánaiste and Minister for Finance Simon Harris said the report comes at a time of notable global uncertainty, as recent developments in the Gulf have disrupted international energy markets.
“While moves toward de-escalation are encouraging, the situation remains volatile,” the Minister noted, reports RTE.
He added that the forecasts are based on the assumption of a short-lived and relatively contained conflict, with minimal long-term damage to energy infrastructure in the Gulf.
“The turbulence in the international environment is a reminder of the importance of keeping our approach to overall budgetary policy balanced and sustainable across the medium-term,” Mr Harris said, reports RTE.
“It is because of this Government’s careful management of the public finances that we have had the fiscal firepower to respond to help households and firms hit by rising energy prices,” he said, reports RTE.
Mr Harris also warned that inflation in Ireland could reach 4.5% this year “in a severe scenario”.
Speaking at the Spring Economic Forecast Briefing this afternoon, he said such a situation would have “real knock-on effects”, reports RTE.
“We’re now expecting under the baseline scenario for inflation to be 3.3% this year. But in a severe scenario, inflation could rise to 4.5% this year,” Mr Harris said, reports RTE.
“That obviously has real knock-on effects on both economic growth and employment, reports RTE.
“I do want to say this is not what we’re predicting, but it is what we must prepare for, reports RTE.
“This is a severe scenario, but we have to be prepared for all scenarios as well,” reports RTE.
The report also highlights possible challenges arising from the global environment, according to Minister for Public Expenditure, Infrastructure, Public Service Reform and Digitalisation Jack Chambers.
“That said, Ireland has weathered several challenges over recent years and the economy continues to perform strongly with further growth projected across different scenarios,” Mr Chambers said, reports RTE.
“In a rapidly changing and increasingly uncertain world, we want to provide certainty on Government’s plans to invest sustainably. Investment will continue to increase with expenditure reaching €125.5bn in 2027,” Mr Chambers said, reports RTE.
“This will provide for increased capital investment in critical infrastructure and enable continued enhancement of public services,” he stated, reports RTE.
Mr Chambers added that while the general outlook remains positive, a prolonged Middle East conflict could create difficulties for Ireland, including persistently high inflation and rising costs.
“There is a need for strong cost controls across Departments to enable continuing delivery of commitments in the Programme for Government,” he said, reports RTE.
Commenting on the Annual Progress Report, AIB Chief Economist David McNamara said it serves as a mid-year assessment of Ireland’s economic performance ahead of October’s Budget.
“As was the case last year with US tariffs, the macro projections are set against a highly uncertain backdrop with inflation expected to spike on the back of the war in the Middle East,” said Mr McNamara, reports RTE.
He also noted that Ireland is facing the current energy shock from a relatively strong position compared with other European countries.
“While the current shock is not yet at the levels of what was experienced following the invasion of Ukraine in 2022, the Government is already using some of this fiscal space to offset the effects of higher fuel prices, spending c.€750m (c.0.2% of GNI*) on fuel subsidies,” he added, reports RTE.
Sinn Féin has criticised the Government, saying it must now introduce a meaningful cost-of-living package following the announcement of the spring economic statement.
In response to the €9.2bn surplus, Sinn Féin finance spokesperson Pearse Doherty said the figure shows Ireland has the resources to support those struggling, despite wider global economic challenges, reports RTE.
“What today’s announcement from the Department of Finance tells us is that the money is there. It is the duty of the Government to defend its people in times of crisis, and right now this Government is failing massively, reports RTE.
“Even a fraction of these surpluses could make a meaningful difference in people’s lives and protect them from this cost of living crisis, reports RTE.
“The time for excuses is over. We need to see excise completely cut on home heating oil and green diesel, and petrol and diesel made affordable. And that needs to be combined with a wider cost of living package that includes energy credits and targeted supports, reports RTE.
“The new economic projections go far beyond what was previously projected, making it crystal clear that the Government can act to support people, but they are choosing not to,” he said, reports RTE.
Labour’s finance spokesperson Ged Nash also said rising inflation expectations for later this year mean the Government should direct resources toward low and middle-income households.
“Now is the time for a Government, that claims to be responsible, to front up with people and to admit that tax cuts beyond indexation for PAYE workers cannot be on the table ahead of Budget 2027, reports RTE.
“Instead, resources need to be focused in a laser-like way on targeted energy credits, fuel supports, accessible retro-fitting and forms of grant aid to some firms, as things are likely to worsen as a result of this energy shock and global volatility, reports RTE.
“This would make the country better prepared than it currently is, for an uncertain future over which we have little control,” Deputy Nash said, reports RTE.
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