Spending on data centre fit-outs fuelling economic growth, claims AIB

Spending on data centre fit-outs is now one of the key drivers of Irish economic growth, AIB has said.

In its latest economic bulletin, the bank said it expected the economy to grow at a “solid pace” of 3.8 per cent this year and 3.1 per cent in 2027 despite the current inflation shock.

Artificial intelligence-related (AI) spending connected with the fit-out of data centres and general investment by Irish-based companies in the tech sector will partly offset the negative inflationary impacts, it said.

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Microsoft, Google and Facebook, which have big operations here, have been spending hundreds of billions of dollars on AI, developing their own models and constructing new data centres to meet surging demand.

AIB said the State was experiencing a “structural uplift in capex [capital expenditure] in the FDI sector, likely related to the AI investment cycle. The AI boom is emerging in two forms – tangible and intangible. Those countries investing in the tangible hardware in semiconductors, data centres and energy; and those importing and investing in the intangible AI software solutions downstream.”

The Republic’s AI-related exports are now growing quickly off a low base, accounting for nearly 13 per cent of all customs goods exports so far in 2026 compared to just 6 per cent in 2025, it said.

On the economy as a whole, AIB chief economist David McNamara said he expected inflation to peak at between 4 and 5 per cent in the final quarter of this year before falling next year.

But it will not fall to the European Central Bank’s (ECB) target rate of 2 per cent until 2028, he said, with oil and gas prices expected to remain elevated for some time.

He also cautioned that risks to the bank’s inflation forecasts were very much “tilted to the upside” because of the current geopolitical uncertainty.

His comments come amid reports the US and Israel are preparing to launch another round of strikes against Iran.

Consumer spending here is expected the moderate from the 2.6 per cent in 2025, to 2.3 per cent in 2026 and 2.1 per cent in 2027 as inflation dampens erodes household income, McNamara said.

The comments come as new data from the Central Stastics Office shows a softening in retail sales. Volumes rose 2.2 per cent in the year to September leaving aside volatile motor trade sales. That is down from an annualised figure of 3 per cent in August.

“Irish consumer confidence in 2026 has been consistently low while actual retail activity has been resilient,” said consultant economist Eugene Kiernan of Tradewinds. “This ‘Gloom Gap’ has been driven by economic uncertainty and relentless pressure from price rises. We may be seeing signs of consumer behaviour catching up with consumer sentiment.”

The other driver in the economy is exports and this is being boosted by a combination pharmaceuticals, semiconductors and IT services, the AIB report said. Exports are forecast to grow by 2.8 per cent this year, rising to 5.2 per cent in 2027.

On housing, AIB noted completions were rising, alongside a growing contribution from public infrastructure spending. On the back of positive recent activity indicators, it forecast housing completions rising to 39,000 units this year.

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“For 2027 and 2028, we envisage supply of 41,000 and 45,000 respectively, underpinned by a sustained uplift in the apartments category,” it said.

Delivery on key infrastructure in relation to water, sewage and energy, however, would be key to sustaining the uplift in supply.

“Ireland’s domestic economy is expected to continue expanding, supported by investment, housing delivery and public infrastructure,” McNamara said.

“However, the renewed inflation shock will weigh on household incomes and consumer spending, while headline GDP will remain volatile because of multinational activity,” he said.