The International Monetary Fund (IMF) has warned that Ireland's economic resilience cannot be taken for granted.
In its latest assessment of the Irish economy, the IMF said the country has maintained a strong performance despite geopolitical tensions and elevated uncertainty.
"But given Ireland's structural vulnerabilities in a world that is becoming more unpredictable, this resilience cannot be taken for granted," it said.
"Navigating the fallout from the war in the Middle East calls for agile, calibrated responses that prioritise temporary and targeted measures for the vulnerable, rather than broad-based ones such as tax cuts, subsidies, and price controls," it added.
Artificial intelligence
The IMF said that Ireland needs to prepare the labour market for Artificial Intelligence (AI).
"Ireland is relatively more exposed to AI than many advanced economies because of its concentration of ICT, financial services, and other knowledge-intensive industries," the assessment found.
"While AI can be associated with substantial productivity gains, realising these gains will require continuous reskilling and upskilling as labour demand shifts towards advanced digital and analytical skills," it added.
Risks to Ireland
The IMF warned that Ireland's high reliance on multinational corporations continues to be a source of vulnerability.
"Rising geo economic fragmentation and elevated policy uncertainty could lead to further reorganisation of supply chains and shifts in trade and capital flows that could be detrimental to Ireland’s globally integrated economy," according to the report.
The assessment calls for broadening of the tax base to provide more sustainable revenue sources for permanent spending commitments and allow for channelling more excess corporate income tax revenues into the two savings funds.
"Increasing local property tax rates could provide higher and more stable revenue streams," the IMF said.
"The number of preferential VAT or excise rates, especially on items that disproportionately benefit higher-income earners, could be reduced.
"Broad-based personal income tax reliefs and exemptions could be reduced," it added.
The IMF said that persistent supply-side constraints in infrastructure, housing, and labour markets could weigh on productivity.
Overspending
The IMF warned that current expenditure has become elevated following rapid growth in recent years, with health and social spending repeatedly exceeding budget allocations.
According to the assessment, strengthening expenditure controls can help minimise spending overruns.
"To ensure timely delivery of infrastructure projects, policy should continue to address key structural bottlenecks to investment, particularly those arising from the complex planning and judicial review process," the report states.
"A broadly neutral fiscal stance would be appropriate in the near and medium term.
"We support the planned scale-up of public investment to close the housing and infrastructure gaps, which could also crowd in private investment," it added.
The IMF said that with the economy already operating at full capacity and upside inflation risks, fiscal policy should avoid injecting unnecessary stimulus and prevent boom-bust dynamics.
"We assess the fiscal stance in 2025-26 to be moderately expansionary and recommend closely controlling current expenditure growth and minimising spending overruns," it said.
Responding to the IMF assessment, Minister for Public Expenditure Jack Chambers said the Government has significantly strengthened the expenditure environment in the last number of weeks.
"There has been the introduction of an expenditure and efficiency level to moderate the overall level of current expenditure, which is required to have a safe and sustainable management of the economy into the long term," Mr Chambers said.
"I'm prioritising fiscal discipline."
"There is a collective government agreement on moderating the overall level of current expenditure, so we ramp up capital investment on infrastructure in particular and I want to protect infrastructure and housing investment into the longer term, which the IMF has said is a really important priority for Ireland and the Government shares that perspective," he added.
Housing
The assessment found that persistent housing shortages warrant renewed efforts to boost housing supply.
It said that progress has been made, including the pickup in housing completions and a gradual shift toward higher density, but also highlighted that achieving the new housing targets will require further reforms, including to streamline the complex planning and judicial review process.
"The New Rent Control Framework, albeit retaining strict rent controls for existing tenants, introduces more predictability and flexibility into the rental market, which could increase rental supply," the IMF said.
"We recommend removing rent controls to further boost rental supply, while continuing to support vulnerable households," it added.
The assessment described electricity infrastructure bottlenecks as an important impediment to investment and growth, and added that the Government has rightly prioritised upgrading of the electricity grid.
Economic forecast
According to the IMF's assessment, the Irish economy is projected to grow at a slower but still robust pace.
It is said that modified domestic demand growth is projected to moderate from almost 5% in 2025 to about 2.5% in 2026-27.
"The slowdown largely reflects a softening of private consumption due to weaker employment and real income growth as well as normalisation of modified investment from a high level in 2025," the IMF said.
"Headline inflation would be impacted by higher energy prices and is projected to rise to about 3.5% on average this year and return to 2% around 2028.
"With the economy in a relatively strong position, this is the time to make sound choices that address vulnerabilities, improve productivity, and secure lasting prosperity," it added.
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