Central Bank revises up economic growth forecast to 3.8%

The Central Bank has revised upwards its growth forecast for the domestic economy by half a percentage point to 3.8% for this year and 3.4% for 2027.

It says faster expansion in the economy is being driven by a substantial rise in demand for software and data centre equipment by multinationals linked to the growth of AI.

But it says the economy is also being helped by strong consumer spending while the savings rate for Ireland is now the highest among countries which use the euro.

The bank says: "The growth in the economy has delivered employment growth, higher incomes and increased government revenue."

But urges the government not to add to strong growth by adding any further stimulus in the Budget.

It says the spending limits outlined by the Government in the Summer Economic Statement "should be adhered to" in next month's Budget.

It says this would limit exposure to volatile corporation tax receipts "concentrated among a small number of multinational firms".

Its comments come as the Irish Fiscal Advisory Council will tell the Oireachtas Budgetary Oversight Committee later today that Government spending is likely to exceed targets by €1.4 billion this year.

Housing forecast revised downwards

On housing, the Central Bank has revised downwards its forecast for how many homes will be built this year by 500 to 39,500.

It predicts the figure will be 41,000 next year, down 2,000 from its previous estimate, and will be 45,000 in 2028 down 1,000 from its earlier forecast.

The bank says it is taking longer to build homes with the time from initial lodgment of planning application to completion of a home taking four years – twice as long as a decade ago.

This is being linked to developers facing difficulties getting water and electricity connections for sites.

The bank calls for implementation of reforms to speed up the delivery of "key national infrastructure" to help housing delivery.

The bank believes more than 50,000 homes need to be built annually to satisfy pent up demand.

The Central Bank says: "Planning permissions have stagnated with an annual average of approximately 35,000 arising since 2023."

It adds that commencements amounted to approximately 16,000 homes in the first half of this year.

However, it points out that there has been a 12% increase in mortgages for new homes.

The Central Bank says population growth is now at the upper end of projections, which is expected to add to demand for housing.