Bank of Ireland’s head of Manufacturing Sector Conor Magee sees “fragile certainty” on trade and a sharper focus on margins in 2026.
Ireland’s manufacturers closed out 2025 with a year of expansion, bucking the malaise that dogged peers across much of Europe.
The sector’s PMI (purchasing managers’ index) averaged 52 in the second half, helped by growth in output and new orders. “H2 2025 delivered a strong performance despite geopolitical and tariff headwinds,” Bank of Ireland’s head of Manufacturing Sector notes in his latest outlook.
“With a laser focus on costs and margins, combined with an eye for leveraging competitive advantage from green credentials, Irish manufacturing fundamentals are strong and well positioned for continued momentum in 2026”
Exports provided the extra lift. Total goods exports were up 18% year on year to November, with shipments to the United States climbing 60% and pharma exports to the US up 96% after two stockpiling surges in March and September. Industry output rose 9% year on year in the September to November period, led by an 11% gain in the modern sector.
Inflation eased into year end. Ireland’s HICP slowed to 2.7% in December while eurozone inflation returned to the 2% target. Input costs remained stubborn in places, from energy to freight, which kept pressure on margins. “Irish manufacturing costs have risen and continue to do so,” the report warns.
Tariffs reshape decisions
The EU and US agreed a trade arrangement in late July that took effect in August, bringing what Magee calls a “fragile certainty” to commerce after months of speculation.
The effective US tariff rate reached 16.8% at its highest point since 1935, up from 4% in 2024. Headline tariffs of 15% apply broadly, with exemptions under review for pharmaceuticals, semiconductors and aerospace, and a 50% rate on steel and aluminium.
For Ireland, the estimated trade‑weighted average is 3.3%, a notional cost of roughly €3bn. “The tariff landscape remains very uncertain, and the only constant is change.”
Companies have responded with pragmatism. The report observes that exposed manufacturers are negotiating outcomes with customers and suppliers, often landing on a shared burden of about fifty-fifty. Hiring remains solid at 323,000 employees, although skills shortages and investment caution could limit further gains.
“Manufacturing businesses are ‘familiar’ with permanent volatility,” Magee writes. “They recognise that major investment decisions are delayed as they take more time to determine best course of action and to deploy capital on what they can control.”
Costs cool in places, spike in others
Several key inputs have eased year on year. Crude oil, natural gas, steel and global freight rates were lower into January. Lithium and aluminium moved sharply higher, with lithium prices up amid demand from battery energy storage, electric vehicles and AI (artificial intelligence) driven data centre buildouts. With the exception of oil and steel, most inputs remain above pre‑pandemic levels.
AI investment brings its own pinch points. The surge in demand for advanced computing has pushed DRAM prices up dramatically since April 2025, the report notes, and is one factor behind higher lithium costs. That combination could lift pricing for consumer electronics, EVs and data centre projects.
ESG gains, but distance to travel
Manufacturers are leaning into the green transition as a competitive necessity. Progress on renewable energy has accelerated, yet the pace of emissions reduction still trails Ireland’s legal carbon budgets.
Against a national target of a 51% cut in greenhouse gases, current projections point to 23% by 2030. Magee argues the opportunity is in using sustainability to deepen customer loyalty and win business even as costs rise.
Infrastructure remains a swing factor. The National Development Plan sets out €275.4bn of investment from 2026 to 2035, with €102.4bn allocated through 2030. Grid capacity, water, housing and planning delays are called out as constraints that must be relieved to unlock the next wave of growth.
Outlook for H1 2026
Bank of Ireland expects growth to moderate as exports normalise after the tariff‑driven surges of 2025.
The tone is constructive. “With a laser focus on costs and margins, combined with an eye for leveraging competitive advantage from green credentials, Irish manufacturing fundamentals are strong and well positioned for continued momentum in 2026,” Magee writes.
Tailwinds include resilient operators, supply‑chain localisation that favours SMEs, steady FDI in R&D and sustainability, and rising grant support for decarbonisation projects. Headwinds range from tariff uncertainty and elevated input and labour costs to tight talent markets and infrastructure bottlenecks. Sentiment is positive but tempered, with 42% of firms expecting activity to rise this year.
Strategy is shifting to what management can control
The report sets out a practical playbook: keep a close watch on costs and margins, push harder on energy transition, deploy AI for automation and efficiency, bargain hard on tariff exposure, diversify products and markets, and prepare for a “patchwork” world of trade defined by four blocs spanning the US, China, a rules‑based plurilateral group and a wider BRICS+ cohort.
Magee’s closing message is steady. “Manufacturing sentiment remains positive,” he writes, even as leaders adopt a more cautious and pragmatic stance in the face of relentless geopolitical uncertainty.
Read the full report:
Top image: Photo by Louis Reed on Unsplash
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