AIB has upgraded its forecast for growth in the domestic Irish economy, as the banks said the uncertainty created by the imposition of US tariffs has "begun to dissipate."
In its latest Economic Outlook Report, AIB said Ireland's economy has proven "robust" to global uncertainty and an escalation in trade tariffs.
The bank said it has led to a "stronger than previously expected outlook for the domestic economy."
"However, geopolitical uncertainty remains high and because of that consumer spending and business investment growth in Ireland are still expected to cool," it added.
Since its last outlook report, the bank has revised upwards its forecast for modified domestic demand (MDD), which is a better measure of domestic activity in the economy.
It now expects MDD, which increased by 2.7% last year, to grow by 3.2% in 2025, 2.5% next year and 2.7% in 2027, amid an "improved international outlook."
In May, AIB forecast MDD growth slowing to 2.3% this year and to 2% in 2026, before bouncing back to 2.6% in 2027.
In terms of employment levels, the bank said the labour market will continue to grow, but it said given the expected easing in economic growth next year, it expects "a more modest expansion in employment."
Following a 2.7% rise in 2024, AIB has forecasted employment growth slowing to 2.1% in 2025, 1.7% in 2026 and 1.9% in 2027.
The bank said further shifts in US trade and economic policy are among the main downside risks to the Irish economy.
It said while some indigenous Irish export sectors may now be exposed to higher US tariffs, there have also been some key carve outs below the headline 15% rate for generic pharmaceuticals and aircraft parts in the EU-US trade deal.
"This should mean Ireland’s effective tariff settles below that headline 15% rate," according to AIB.
"In terms of upside risks, a further easing in global uncertainty could underpin stronger domestic spending and investment in the coming years," it added.
Commenting on the report, AIB’s Chief Economist said the global macro backdrop has "improved since our last Economic Outlook in May 2025."
David McNamara said the uncertainty created by the dramatic shift in US trade policy in April is still elevated, but he said the EU-US trade deal has also "brought some predictability for exporters."
"Amid this volatility, the Irish economy has been robust, but there are some signs of cooling, particularly in the labour market," he said.
"For the domestic economy we expect an easing in growth next year, as ongoing uncertainty dampens both consumer spending and business investment growth," he added.
Mr McNamara said while the risks remain tilted to the downside, "the Irish economy has shown remarkable resilience to global shocks in recent years, and the economy is set to continue to outperform European peers."
In terms of gross domestic product (GDP), which includes the activity of multinational companies, AIB has also revised upwards its growth forecast.
The bank now expects GDP to grow by 9.1% this year, slowing to 3.8% next year, with growth of 3.5% in 2027.
AIB said Irish GDP remains "a volatile gauge of activity, as evidenced by the sharp swings in growth in recent quarters, but the globalised nature of Ireland’s GDP also reveals the impact of tariff front-running in the global economy."
"In the first half of 2025, GDP grew by an enormous 18% year-on-year, driven almost entirely by activity and exports from Ireland’s multinational sector.
"While this surge in exports is now starting to ebb, there are also signs of structural factors driving the recent growth in Irish manufacturing," it added.
The bank notes that Ireland has become "a production hub for the weight-loss drug market, from which a specific hormone derivative product accounted for 56%, by value, of all Irish pharma exports to the US in H1 2025, compared to just 8% in H1 2024."
AIB said the surge in global demand for weight-loss drugs is "likely to underpin Irish pharma exports in the near term."
It said it highlights "the increasing importance of a small number of firms for Irish GDP, and the growing reliance of the Exchequer on associated tax receipts."
