Ireland entered 2026 on a strong fiscal footing, but the Government is warning that heightened geopolitical risks causing disruption to global energy supplies now pose a material risk to inflation, growth and the public finances, according to the
Annual Progress Report (APR) 2026 published this week by Tánaiste and Minister for Finance Simon Harris and Minister for Public Expenditure Jack Chambers.
Inflation revised upwards
Headline inflation is forecast to average 3.3 per cent in 2026, around 1.4 percentage points higher than assumed in the Department’s autumn forecasts, reflecting the sharp rise in global energy prices following the conflict in the Middle East.
Under more adverse scenarios modelled in the APR, inflation could average 3.7 percent, rising to 4.6 percent in a severe scenario involving prolonged disruption to energy supplies.
Domestic growth remains positive
The Department of Finance is still forecasting growth in the domestic economy. Modified Domestic Demand (MDD), the key measure used to strip out multinational distortions, is projected to grow by just over 2 percent in 2026 and 3 percent in 2027 under the baseline scenario.
However, these represent downward revisions from earlier expectations and are explicitly dependent on the current energy shock being contained. Under more severe scenarios, domestic growth slows further.
Expenditure ceilings lifted, capital investment prioritised
On the fiscal side, the report confirms that the Government has increased the 2026 expenditure ceiling by €0.7 billion to €118.5 billion, with targeted supports for transport, farming and fisheries sectors facing higher energy costs, along with additional funding and staffing in education.
Looking further ahead, the (voted) expenditure ceiling is set at €125.5 billion in 2027, reflecting continued expansion in capital investment and public services. Ministers stressed the need for strong cost control across Departments to protect this investment profile in an increasingly uncertain environment.
Budget 2027
The APR sets the tone for fiscal policy ahead of Budget 2027, which will be shaped over the summer through the Summer Economic Statement. The combination of higher inflation, moderate domestic growth and renewed global uncertainty suggests tougher trade-offs ahead particularly around current spending growth and capital spending. The Institute is finalising its Pre-Budget 2027 submission following committee engagement and this will be published in the coming weeks.
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