Bank of Ireland

Ireland has navigated Brexit, a pandemic and an energy shock – we’ll weather this too

Geopolitical turmoil in the Middle East has pushed oil prices toward $100 a barrel and trimmed Ireland’s growth forecast for 2026. Bank of Ireland’s chief economist Conall Mac Coille says the fundamentals of the Irish economy still hold steady.

Irish business owners have grown used to navigating turbulence. Brexit, the pandemic, the energy crisis that followed Russia’s invasion of Ukraine. Each time, the economy found its footing.

Economists at Bank of Ireland say this latest shock, driven by Middle East conflict and a surge in global oil prices, follows a similar pattern: painful but manageable, provided the disruption does not become entrenched.

The Bank revised its Irish GDP growth forecast for 2026 down to 1.6% from a previous estimate of 2.8%, a downgrade that reflects the unwinding of temporary factors that boosted exports in 2025, particularly the front-running of US tariffs, along with the impact of higher energy prices on household spending.

Growth is then expected to recover to 3.6% in 2027, supported by a strong labour market and new pharmaceutical capacity.

For business owners, the headline message from Conall Mac Coille, Bank of Ireland’s group chief economist, is blunt. “Growth is expected to slow, but certainly not to the point of recession by any means,” he said.

What is actually happening to prices

Consensus forecasts compiled in April suggest consumer price inflation will average between 2.5 and 3% across the eurozone this year, with similar outcomes expected in the UK and the US. Ireland is running hotter than the European average. Ireland’s 3.6% HICP inflation rate in March was the fifth highest in the euro area, reflecting exposure to a 63% rise in home heating oil prices.

That home heating exposure is a particular vulnerability for businesses and households alike. “The weight of home heating oil in Ireland’s index is about three times the euro area average,” Mac Coille noted, adding that a standard 500 litre fill has risen from about €480 to roughly €880. If you are running premises on oil, those numbers are already in your costs.

Electricity and gas bills carry their own uncertainty. Bank of Ireland has assumed a 10% rise in household energy prices from Q4 2025 onwards. “A 10% increase in household energy bills would add around 0.4 percentage points to inflation,” Mac Coille said. Irish energy providers tend to hedge prices well in advance, which means changes at wholesale level filter through slowly. The delay cuts both ways: prices can stay elevated on your statement long after markets have moved.

The oil market risk that forecasters may be underpricing

Markets appear, for now, to be betting that Middle East supply disruptions will prove temporary. Futures prices point to Brent crude easing from around $95 per barrel toward the high $70s over the next year. Most macro forecasts, including Bank of Ireland’s, are built on that assumption. But the physical oil market is telling a different story.

Dated Brent contracts tied to near-term delivery have traded well above futures prices in recent weeks, peaking above $130 per barrel earlier in the spring. Bank of Ireland cautioned that its projections are based on energy price futures curves toward $75 per barrel, which imply the disruption to oil supply from the Middle East will be short-lived. Here, investors may be too optimistic.

Mac Coille was direct about the tail risk. “If oil were to rise towards $150 or even $200, you would see further upward pressure on interest rates, forcing deleveraging in bond markets and potentially triggering broader asset price corrections,” he said. That is not the central case, but it is worth stress-testing your financing arrangements against.

Where Irish businesses have room for confidence

Consumer spending, while softening, has not collapsed. Employment growth continues at around 2%, wages rose by 4.4% last year, and overall household incomes are still growing at about 5 to 6%, comfortably above inflation. “As long as employment remains strong, consumer spending should hold up,” Mac Coille said.

Irish households are well placed to cope in aggregate. The savings ratio remained high at 14% in 2025, household debt continues to fall, and bank deposits stood at €172 billion in February, up 6.3% year on year. That stockpile of savings matters for consumer-facing businesses: the demand is there when confidence returns.

For exporters and those supplying into export-led industries, the structural picture remains favourable. Mac Coille pointed to Ireland’s concentration in pharmaceuticals, ICT, agri-food and medical technology as a genuine buffer. “These are defensive sectors. They have supported the economy through previous global downturns, and there is no reason to think that protection disappears now,” he said.

On the wider economic outlook, Mac Coille said the Irish economy “is expected to show the same resilience demonstrated during Brexit, the Covid-19 pandemic, and the energy shock that followed Russia’s invasion of Ukraine.” Investment plans already in place are expected to proceed, and business confidence surveys have shown only a muted negative impact from recent events.

The practical upshot

The energy shock is real and it is not over. Running costs are up, particularly for businesses with high heating or logistics exposure.

The excise cuts on petrol and diesel that have offered some cushion are scheduled to be reversed in August, a date worth building into cost projections now. Rate expectations remain uncertain and are moving with the oil price, so businesses carrying variable rate debt should keep that under review.

The broader message is one Mac Coille has delivered before about previous crises: Ireland enters difficult periods with more going for it than it tends to give itself credit for.

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