ESRI Urges Tighter Fiscal Measures to Prevent Economic Overheating

The Economic and Social Research Institute (ESRI) has called for a “tighter” fiscal stance in the upcoming Budget 2026 to mitigate the risk of overheating the economy. The budget, scheduled to be delivered by Minister for Finance Paschal Donohoe and Minister for Public Expenditure Jack Chambers on October 7, 2025, is set to include a planned package of €9.4 billion, which comprises €7.9 billion in additional public spending and €1.5 billion in the tax package.

In its quarterly economic commentary released on Thursday, the ESRI reported that the Irish economy continues to show resilience, with ongoing growth in consumption, employment, and tax receipts. The recent EU-US agreement on tariffs has alleviated some uncertainty that had been prevalent throughout the year. Nevertheless, the ESRI noted that the introduction of a new 15% tariff represents a significant deterioration in Ireland’s trading environment compared to previous policies. This change will particularly affect firms and sectors heavily reliant on exports to the US, highlighting the need for enhanced trade diversification and competitiveness strategies.

According to an analysis by Professor John Fitzgerald, the impact of US tariffs is expected to affect the profits of pharmaceutical companies operating in Ireland more than their overall output or employment levels. This insight underscores the nuanced effects that international trade policies can have on local economies.

The ESRI has revised its forecast for housing completions in 2025 upwards to 35,000 units. However, a notable slowdown in housing commencements has led to a downward revision for 2026, estimating 36,000 units. The think tank indicated that the outlook beyond this forecast period appears to be weakening, citing a decline in planning permissions and a drop in new project commencements.

The ESRI’s assessment emphasizes the necessity of a tighter fiscal stance in Budget 2026 to prevent overheating. Professor Alan Barrett, a researcher at the ESRI, remarked on the recent volatility in the international economic landscape, stating, “In that context, we point to the clear need for a tighter fiscal stance in Budget 2026.”

Moreover, Dr. Conor O’Toole, Associate Research Professor at the ESRI, highlighted the challenges of addressing bottlenecks in housing and infrastructure at full employment. He stressed that expenditure must be targeted and sequenced to effectively tackle these constraints.

Earlier this month, the Irish Fiscal Advisory Council also recommended a reduction in the planned budget package, citing “high uncertainty.” They asserted that the proposed €9.4 billion package may be excessive given the current robust performance of the economy. A more restrained approach, they argued, would help avoid overheating and allow for greater flexibility to respond to future economic downturns.

As the October 7 deadline approaches, the discussions surrounding Budget 2026 are likely to intensify, with significant implications for Ireland’s economic strategy and fiscal health.