Bank of Ireland chief economist Conall Mac Coille and former ambassador Dan Mulhall examine oil prices, rates, housing, AI, tax risks and geopolitics shaping 2027.
Bank of Ireland chief economist Conall Mac Coille assesses the local and global economic outlook as we head toward 2027. At a special Bank of Ireland event, he was joined by Dan Mulhall, former Irish Ambassador to the United States, UK, Germany and Malaysia, who cast his expert eye on world affairs.
Irish businesses face another year shaped by volatile energy prices, restrictive interest rates and geopolitical upheaval, according to the outlook presented at Bank of Ireland’s 2027 forecasting event.
“We’re finally getting to that level of home building which is eating into pent-up demand and helping the housing market at the moment”
The briefing examined prospects for the Irish, European, UK and US economies, alongside the potential effects of war, trade policy, artificial intelligence investment and changes in global political leadership.
Opening the event, Kevin Baxter, head of Bank of Ireland’s property finance group, said its purpose was to give customers practical guidance as they plan for the year ahead.
“The aim of today is quite simple. It’s to provide you with some practical insights as we look into 2027,” he said. “We’re going to look at political, economic, financial outlook for the year ahead, and how some of the outputs of that are going to shape key business decision making as we enter into 2027.”
KEY NUMBERS: Ireland’s 2027 Outlook
- 38,000 homes completed in year to June
• 67,000 population growth over same period
• 48,000 net migration recorded year-on-year
• Irish inflation forecast to reach 3%-3.5%
• Household savings ratio at 20%
• Job creation running between 1.5% and 2%
• Public capital spending rising to €20bn next year
• Apple, Microsoft and Eli Lilly account for almost half of corporation tax receipts
Editorial takeaway: Ireland enters 2027 from a position of relative strength, but higher inflation, infrastructure delivery constraints, corporate tax concentration and geopolitical risks remain key challenges for business leaders.
Oil prices hold the key to inflation
Bank of Ireland’s economic assessment by chief economist Conall Mac Coille pointed to more resilient global growth than previously expected, supported by consumer spending and a major cycle of investment in artificial intelligence.
The US economy has benefited strongly from that investment, which has helped to absorb some of the impact of tariffs and rising energy costs. Growth in the UK and Europe is expected to remain subdued.
Oil prices are now one of the biggest variables affecting the outlook. Further disruption to global supplies could lead to another increase in inflation, borrowing costs and pressure on household budgets.
The chief economist said the forecasts were highly dependent on where energy prices move next.
“This really depends on oil. We could be here in a month, two months’ time, $150 per barrel, and something much more aggressive,” he said. “So, for the moment, two rate hikes towards the end of this year, early next year.”
Mac Coille’s forecast includes two 25-basis-point increases from central banks, although financial markets have priced in the possibility of a sharper tightening cycle.
Central banks are expected to raise rates by a combined 0.50 percentage points through early 2027, while major currency markets are forecast to remain relatively stable. The euro is expected to trade within current ranges of $1.13 to $1.20 against the US dollar and £0.83 to £0.89 against sterling, providing a degree of certainty for exporters and importers despite ongoing global volatility.
Higher oil prices have become closely connected with interest-rate expectations. When energy prices rise, investors anticipate further action from central banks. Falling prices reduce those expectations.
Longer-term borrowing costs have also returned to levels last seen during the inflation shock of 2022 and 2023.
“Eventually swap rates will fall back towards that kind of two to two and a half percent range,” the economist said. “But there’s clearly a lot of water to go under the bridge before we get to that point.”
Ireland enters 2027 from a strong position
Ireland remains better placed than many European economies to withstand an energy price shock. Its large ICT and services sectors make its overall economic output less energy-intensive than countries with a greater dependence on heavy manufacturing.
Households remain exposed through transport and home-heating costs. Inflation in Ireland could rise towards 3 per cent or 3.5 per cent during 2027, according to the outlook.
The Irish economy previously continued to expand while inflation approached 10 per cent following the energy shock associated with the war in Ukraine.
“If you think back to Ukraine, we were fine. It came through 10% inflation,” the economist said. “Our energy intensity of our GDP is actually quite low compared to other countries.”
Household savings could provide an additional buffer for consumer spending. The presentation cited a household savings ratio of approximately 20 per cent.
Jobs market moves to a slower pace
Ireland’s labour market is beginning to cool following several years of rapid expansion.
Different measures put current job creation at between 0.8 per cent and 2 per cent. Bank of Ireland’s assessment suggests the underlying rate is likely to be around 1.5 per cent to 2 per cent.
Employment growth in ICT has weakened, while hotels, restaurants, wholesale and retail are also performing poorly. Construction, manufacturing, health and education are playing a greater role in supporting employment.
“Our labour market is starting to slow down and has become much more reliant on, say, construction, the public sectors, health, education, and also manufacturing had a very good year,” Mac Coille said.
He said it was too early to attribute weaker recruitment or lower vacancy levels directly to AI.
“I think it’s probably just far too soon to really detect that AI is having a negative impact on job creation,” the economist said. “I think this is more about the labour market coming off the boil rather than seeing a really negative impact from AI on job creation so far.”
Infrastructure delivery remains a business concern
Ireland’s capacity to turn public capital spending into completed infrastructure was identified as a major domestic challenge.
Public capital expenditure has risen substantially in recent years and is due to reach €20 billion. Real civil engineering output has remained broadly flat, with additional spending absorbed by construction costs, capacity constraints and procurement delays.
“I think the real challenge is capital expenditure and delivering infrastructure, which we sorely need and is really identified by business as the key thing they’re looking at,” the economist said.
The construction outlook anticipates further growth over the coming three years. Delivery will depend on the sector’s ability to overcome labour shortages, supply pressures and contractual difficulties.
Corporate tax concentration draws attention
Ireland’s dependence on corporation tax receipts from a small number of multinational companies will receive increasing international scrutiny.
Country-by-country reporting is providing greater visibility into where large companies pay tax. The presentation cited Apple, Microsoft and Eli Lilly among the companies making significant payments in Ireland.
“The secret is out. We know where which companies are paying the corporate taxes,” the economist said. “So this is going to influence clearly future discussions in corporate tax reform going forward.”
The concentration of receipts strengthens the case for running larger budget surpluses and placing windfall tax income into long-term funds.
Housing supply begins to address pent-up demand
The housing market offered one of the presentation’s more positive signals.
Approximately 38,000 homes were completed in the year to June, with apartment construction holding up more strongly than expected. Population growth over the same period was reported at 67,000, including net migration of 48,000.
“We’re finally getting to that level of home building which is eating into pent-up demand and helping the housing market at the moment,” said Mac Coille.
Mortgage lending rules are continuing to constrain the amount buyers can borrow. Around half of first-time buyers now have mortgages valued at between 3.5 and four times their income.
The economist said these limits reduced the risk of a credit-driven housing bubble, even as affordability and supply remain significant obstacles for buyers.
A world of vanishing certainties
Former Irish ambassador Dan Mulhall said geopolitical analysis had become essential to any economic forecast.
“The world is on a roller coaster ride at the moment. But I still think, use a great Irish phrase, it’ll be grand, more or less”
Two major wars, growing rivalry between the US and China and strains within the transatlantic alliance have created what he described as the most complex international environment he had observed during his career.
“This is the most complex scenario that I have observed in the nearly 50 years that I’ve been following international relations,” he said. “So it’s a time really when all certainties have dissolved.”
Mulhall said a “new world disorder” was emerging as established alliances weakened and major powers competed for global influence.
He identified the European Union as Ireland’s most important means of navigating that uncertainty.
“From our point of view, I think we have to see the European Union as the most likely vehicle for Ireland managing these very rough waters,” he said. “Because we don’t have a capacity to shape the international environment, we’re just too small. No one’s going to listen to us. But within the European Union, we do have a say.”
Europe faces a leadership test
The European Union must confront challenges involving political leadership, defence and economic competitiveness, according to Mulhall.
Questions over the future US commitment to European security could gradually push the EU towards a more independent defence arrangement. Such a development would create significant policy questions for Ireland.
“Europeans will, for as long as they possibly can, try to keep the Americans on board, bind them to Europe, but they must recognise that the writing’s on the wall there,” he said.
He also called for greater economic dynamism across Europe and a stronger political vision from the centre ground.
“The ideas these days are all coming from the right and the left, and the center ground seems to be bereft of ideas,” he said.
Businesses prepare for continued volatility
The 2027 outlook presents Irish businesses with a mixture of domestic resilience and external risk.
Employment continues to grow, housing construction is increasing and the economy retains important structural strengths. Energy prices, borrowing costs, infrastructure constraints, corporate tax concentration and geopolitical instability will influence investment and planning decisions throughout the year.
Mulhall offered a cautiously optimistic conclusion for businesses facing that uncertainty.
“The world is on a roller coaster ride at the moment,” he said. “But I still think, use a great Irish phrase, it’ll be grand, more or less.”
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