IRELAND’S ECONOMY IS expected to continue growing despite higher energy costs, with booming global investment in artificial intelligence providing a potential boost to the country, according to the ESRI.

In its latest Quarterly Economic Commentary, the institute forecasts modified domestic demand (MDD), a measure designed to give a clearer picture of the domestic economy, will grow by 2.6% this year and 3.4% in 2027.

However, inflation is expected to remain elevated at 3.6% this year and 3.3% next year, with Ireland particularly exposed to international oil and gas prices because of its reliance on imported fossil fuels. 

The ESRI describes Ireland as being caught between two international economic “cross currents”: disruption to global energy markets caused by the conflict in the Middle East, and a rapid increase in investment associated with AI.

It said damage to energy infrastructure and disruption around key shipping routes have driven up oil and gas price expectations, with those costs feeding through to Irish households and businesses. 

The warning comes as Irish consumers are already facing renewed energy pressures.

Wholesale electricity prices in August were 77% higher than a year earlier, while major suppliers have increased household gas and electricity prices by roughly 8% to 11% since March. 

On the other hand, the ESRI said Ireland is well-placed to benefit from the enormous sums being invested internationally in the infrastructure needed for AI.

“Investments globally in the software, hardware and energy production necessary to drive the AI-economy are likely to benefit open, globally connected economies like Ireland,” the report said.

“We are seeing the early signs of this in both investment and export data, and we expect this to contribute to growth over the period ahead. 

“We appear to be favourably positioned to gain from the AI-related activities while also continuing to maintain a relatively robust export level in pharmaceuticals in the short term,” the report added.

Computer services exports have continued to increase, while more than €7 billion of the rise in non-pharmaceutical goods exports during the first half of this year came from electrical machinery and automatic data-processing equipment.

The ESRI said this suggested Irish-based exporters may be well positioned to benefit from continued data-centre investment.

However, the continued expansion of data centres has prompted concerns over their impact on Ireland’s energy system, with the facilities accounting for 22% of national electricity grid demand in 2024.

More than €214 million was separately invested in Irish AI companies during the first half of 2026, according to research published last month, amid record global investment in the technology. 

But the ESRI cautioned that the AI boom also increases Ireland’s exposure to a relatively small number of major multinational companies.

It warned that a correction could pose risks to economic output, employment and the public finances if heavy AI investment fails to produce the returns companies expect. 

Elsewhere, the institute forecasts 39,200 new homes will be completed this year and just under 40,500 in 2027, but warned that the continued lack of a substantial increase in planning permissions presents a weakness over the medium term.

The forecasts also leave housing output well below the government’s target of delivering more than 50,000 new homes annually by the end of the decade.