The global economy has shown resilience amid geopolitical shocks. Energy price rises are dampening activity, but this is being offset to a large extent by the boom in AI-related investment.

Budget 2027 is set against heightened geopolitical uncertainty, but exceptional fiscal surpluses. The starting point is a nearly €6.7bn surplus (1.9% of GNI*) in 2026. The budget surplus is forecast to be €9.5bn in 2027 (2.5% of GNI*). However, excluding windfall corporation tax receipts, the Government will run a significant underlying deficit of €13.4bn in 2027 (-3.5% of GNI*).

Irish manufacturing activity remained strong in September, with the PMI edging up to 55.5 as output and new orders continued to grow, including export orders. Traditional industrial production also strengthened, rising 4.4% in the three months to August and 0.8% year-on-year.

The US Federal Reserve Open Market Committee (FOMC) meeting for October saw the central bank, as expected, leave its interest rate policy unchanged. The target range for the Fed funds rate was maintained at 3.75 -4.00%. The decision to leave rates unaltered was not unanimous, with the vote split 10:2, with the two dissenters (Cook and Hammack) in favour of a 25bps rate hike.

The October meeting of the ECB ’s Governing Council saw the central bank leaves its key interest rates unchanged. The deposit and refi rates were maintained at 2.50% and 2.65%, respectively. This was very much in line with expectations. The most recent policy change from the ECB was at its previous meeting in September, when it hiked rates by 25bps for a second time this year (previous hike occurred in June).  

The September meeting of the Bank of England’s Monetary Policy Committee (MPC) saw the central bank continue to leave the Bank Rate unchanged, at 3.75%. This was in line with market expectations. It marks the sixth successive meeting where the central bank has been on hold.

• Economic picture has been robust in the face of geopolitical shcoks, but ongoing energy shocks brings risks to the outlook
• US economy continues to outperform, with Eurozone and UK dented by higher energy prices and policy uncertainty

Foreign Currency and Interest Rates from 2025

The Irish residential property market remains defined by tight supply as 2025 draws to a close. However, over the course of the year, there have been some encouraging signs in the suppy dynamics, albeit the outlook remains challenging. 

This Budget is set against an uncertain economic backdrop so far this year. GDP growth was robust in the early part of the year but has since moderated. The Chancellor had committed to not raising taxes materially further following last year’s hikes to national insurance (NI) on employer contributions, which among other measures raised £40bn. While the tax rises are largely to fill the hole in the fiscal rules, there are also net spending increases in the budget