Bank of Ireland’s head of Manufacturing Sector Conor Magee reports that Irish manufacturers remain resilient as AI adoption accelerates, exports normalise and firms battle rising costs.
Irish manufacturing continued to expand during the first half of 2026 despite a sharp decline in exports, with Bank of Ireland describing the sector’s overall performance as solid and underpinned by strong fundamentals.
According to Bank of Ireland’s Manufacturing Sector H1 2026 Insights and H2 2026 Outlook report, the sector has now recorded 18 consecutive months of expansion since December 2024, with Ireland posting an average Purchasing Managers’ Index (PMI) of 54.1 in the first six months of the year compared with 51.2 across the EU.
“Given the exaggerated activity level in 2025 and current YTD indicators, overall growth in the manufacturing sector for FY2026 is on a knife edge”
While exports fell sharply year on year, the report notes that much of the decline reflects a correction from exceptionally high activity levels in 2025, particularly in pharmaceuticals.
Total exports were down 38% between January and May compared with the same period last year, while pharmaceutical exports to the US fell 70%. Employment remained strong, with approximately 323,000 people working across the sector.
Conor Magee, head of Manufacturing Sector at Bank of Ireland, said the sector remains well-positioned despite a more challenging backdrop.
“Given the exaggerated activity level in 2025 and current YTD indicators, overall growth in the manufacturing sector for FY2026 is on a knife edge.
“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.”
Rising costs challenge competitiveness
Manufacturers continue to face significant cost pressures from higher wages, pension contributions, healthcare obligations and elevated energy costs. [
Inflation rose to 3.2% in June, reflecting the impact of the Middle East crisis and its effect on energy and input prices. Shipping costs have also increased markedly, with the Drewry World Container Index rising 139% from $1,899 to $4,547 per container.
The report warns that geopolitical uncertainty remains a major factor influencing business decisions.
“2026 will continue with the risks associated with geopolitics. Prevailing and heightened uncertainty inhibits new investment, dampens recruitment and triggers downward revisions of earning forecasts.”
Tariff concerns persist but Irish exposure remains low
Despite ongoing uncertainty around US trade policy, Irish manufacturers remain relatively well insulated from tariff impacts compared with many international competitors.
The report states that Ireland’s average effective US tariff rate remains at 2.7%, among the lowest rates recorded globally. It also highlights that $81bn of tariff refunds have already been processed in the US following legal challenges to earlier measures.
According to the report, “Exposed companies are negotiating best outcomes, including passing on some or all of cost impact.”
AI and sustainability move up the agenda
The report highlights growing investment in both sustainability and digital transformation.
Bank of Ireland said manufacturers are increasingly embracing environmental initiatives as a competitive advantage, noting that Ireland’s greenhouse gas emissions declined by 2.2% in 2025, while manufacturing emissions fell by 3.9%.
“Manufacturing businesses are embracing green and carbon reduction as a strategic and competitive imperative.”
Artificial intelligence is also becoming a strategic priority. Citing Ibec research, the report notes that AI is now a priority for 52% of businesses. Investment is focused on areas including computer vision, predictive maintenance, digital twins, autonomous robotics and production scheduling optimisation.
The report states that Ireland is “transitioning from Industry 4.0 digitalisation to AI-enabled manufacturing”, with some of the most advanced deployments occurring in MedTech, pharmaceutical, semiconductor and food manufacturing businesses.
Infrastructure investment vital for future growth
Looking ahead, Bank of Ireland identifies infrastructure constraints as a key issue for the sector, particularly in housing, water, electricity networks and planning.
The report points to the Government’s National Development Plan, which includes €275.4bn of investment between 2026 and 2035, including €102.4bn allocated up to the end of 2030.
Magee said manufacturers have become accustomed to operating in uncertain conditions and are focusing on areas where they can exert greater control.
“Manufacturing businesses are ‘familiar’ with permanent volatility. Investment and funding will vary across subsectors and can be characterised as cautious and in a holding pattern. Businesses may delay to understand geo shocks, will forensically assess financial rational, and focus capital resources on areas with greatest degree of control. Sustainability, automation and AI opportunities typically represent strategically best options.”
The report concludes that sentiment remains positive overall, with 42% of manufacturers expecting activity levels to increase during 2026, although businesses are taking a more measured approach amid continuing geopolitical uncertainty.
Read the full report:
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