OECD warns Ireland that investment projects need to be ‘carefully sequenced’

Investment aimed at addressing the State’s infrastructural problems will need to be “carefully sequenced” to avoid adding to inflation, the OECD has warned Ireland.
In its twice-yearly economic outlook, the Paris-based Organisation for Economic Co-operation and Development (OECD) acknowledged that while large investments in housing, transport and energy were needed, the Irish economy faced capacity constraints, especially in terms of labour and skills.
“Effective prioritisation and sequencing of projects are needed to balance potential short-run inflationary impacts and the long-run benefits of enhanced public investment,” it said.
The OECD’s warning echoes recent comments by the Irish Fiscal Advisory Council (Ifac) which claimed the Government was pursuing an “everything now” approach to budgeting which was fuelling domestic price pressures.
It also comes in the wake of an election campaign where parties from all sides made big spending promises.
In its assessment, the OECD predicted the Irish economy would contract by 0.5 per cent in headline gross domestic product (GDP) terms this year on the back of what it described as “significant swings in investment and exports, mostly driven by the multinational sector”.
However, it noted that “such volatility masked renewed strength in pharmaceutical exports, following their post-Covid rebalancing”.
Following a contraction this year, it predicted the Irish economy would rebound growing by 3.7 per cent and 3.5 per cent in 2025 and 2026 respectively “as volatility from the multinational sector subsides, financial conditions improve and goods exports recover”.
The Government’s overall fiscal stance was projected to be broadly neutral over the projection horizon underpinned by continued revenue strength.
On Budget 2025, it noted that around two-thirds of the core €10.5 billion package consisted of permanent spending measures, “largely aimed at preserving the existing level of public services, against the backdrop of a larger-than-assumed population, and a need to sustain infrastructure spending.”
It warned, however, that repeated breaches of the State’s 5 per cent spending rule “risked lowering” the Government’s fiscal credibility. “Sustained adherence to the 5 per cent spending rule is needed to ensure the long-term sustainability of public finances,” it said.
The 5 per cent expenditure rule was introduced by the government in 2021 to keep the annual increase in spending within sustainable limits.