AIB economic outlook predicts growth despite rising inflation

Home construction expected to climb to 45,000 completions by 2028

The bank expects domestic economic activity to expand by 3.8% in 2026, followed by 3.1% in 2027. 

The figures are based on Modified Domestic Demand, a measure designed to give a more accurate picture of Ireland’s economy by accounting for distortions caused by multinational companies. 

Growth on this measure reached 4.7% last year, according to RTÉ.

Housing remains a major concern, despite signs that construction activity is picking up. 

Ireland completed 36,000 homes last year, and completions during the first six months of 2026 were 11% higher than in the same period of 2025.

AIB forecasts that 39,000 homes will be completed this year, with the annual total expected to rise to 41,000 in 2027 and 45,000 in 2028. 

The bank expects a sustained increase in apartment construction to contribute to the improvement.

Ireland's exports forecast to grow 5.2% in 2027

Reaching those figures will depend on whether essential infrastructure can keep pace with development. 

AIB highlighted the need for greater capacity in water supplies, sewage systems and energy networks, warning that these services will be crucial if housing output is to rise beyond 45,000 units a year.

The outlook for consumers is less encouraging. Although household spending is expected to continue growing, the pace is likely to slow as rising prices erode purchasing power and employment growth loses momentum.

Inflation is forecast to become more pronounced before easing. AIB expects the rate of harmonised inflation to peak in the final quarter of 2026, as higher oil and gas prices feed into the wider economy. 

Its projections put average inflation at 3.5% this year and 3.1% in 2027, before it moves towards 2% in 2028.

The bank also cautioned that inflation is more likely to exceed its forecasts than fall below them.

Trade is expected to provide a source of support. Ireland’s exports are projected to grow by 2.8% in 2026, accelerating to 5.2% next year, with pharmaceuticals and IT services among the sectors expected to contribute.