Is the Irish Engineering Sector Poised for Growth Despite Ongoing Challenges?

The Irish engineering sector is showing steady signs of recovery and growth, with business sentiment improving across the industry. According to the latest Engineering Sector Manufacturing Report 2025 published by the Ibec group Engineering Industries Ireland (EII), confidence levels are on the rise despite ongoing challenges facing the sector.

While the report highlights growing optimism, the engineering sector continues to face several key obstacles. These include the ongoing struggle to attract and retain skilled talent, managing rising labour costs, and the effects of slower global economic growth. Despite these issues, the overall outlook is positive, with many companies expressing confidence about the future, though one-third of respondents still report their outlook as either average or poor.

Irish engineering sector optimistic about the future despite challenges

Rising Costs Remain a Top Concern

A major concern for businesses within the engineering sector is the pressure of rising operational costs. The report reveals that 79% of businesses anticipate wage growth as a primary challenge in the coming months. In addition to labour costs, half of the surveyed businesses are focused on strategies to improve profitability as they navigate inflationary pressures and a more uncertain global market.

Furthermore, nearly half (46%) of businesses cited the need to increase production while simultaneously managing labour costs effectively. This balancing act remains crucial for businesses aiming to stay competitive in an increasingly volatile market.

Sustainability as a Central Focus

Sustainability continues to be a key priority within the engineering sector. The report indicates that 83% of businesses are actively engaged in sustainability initiatives, whether to meet regulatory requirements or adhere to the expectations set by parent companies. This reflects a growing trend in the industry toward aligning with environmental, social, and governance (ESG) goals and regulatory standards, in line with global commitments to carbon reduction.

Ireland’s engineering sector is also showing a heightened commitment to decarbonisation, with many businesses looking to innovate through sustainable design and production methods. As the country works towards meeting its climate targets, the role of engineering in the transition to a low-carbon economy will be increasingly critical.

The Rise of Artificial Intelligence in Engineering

Artificial intelligence (AI) is becoming an important tool for improving efficiency and productivity across the sector. The report found that 50% of businesses are already adopting or enhancing AI initiatives to streamline operations and drive innovation. Despite the growing use of AI, only 25% of companies consider it a top priority. This gap suggests that while AI holds significant potential, many businesses still have hurdles to overcome before it can be fully integrated across operations.

The role of AI is particularly relevant in enhancing digital capabilities and automating processes, both of which are vital for remaining competitive in the global engineering market. The integration of AI into areas such as design, manufacturing, and project management can help companies reduce costs, enhance productivity, and accelerate time-to-market for new products and services.

Also read: AI-Powered Wind Turbines: A New Era for Urban Energy Generation

AI plays a vital role in the progression of Engineering

Addressing Talent Shortages and Skill Gaps

One of the most pressing challenges highlighted in the report is the shortage of skilled talent. As the demand for engineering expertise grows, especially in emerging areas such as AI, automation, and green technologies, businesses are struggling to find and retain qualified professionals. To tackle this issue, the industry is calling for a more robust national strategy to address skills shortages and improve access to digital and engineering training programs.

Pauline O’Flanagan, Director of EII, remarked, “The engineering sector, which contributes €8.8 billion in exports and employs 50,751 people across Ireland, remains optimistic despite the persistent challenges related to talent, costs, and geopolitical uncertainties.” She continued, "It is encouraging to see initiatives outlined in the new government programme that directly address some of these issues, such as the National Digital Skills Strategy, which is crucial for unlocking Ireland’s potential in digital and AI technologies.”

Government Support and Strategic Focus

Looking to the future, the engineering sector is optimistic about the support outlined in the government’s enterprise plan. The focus on a National Digital Skills Strategy, in particular, is seen as a vital step in fostering the digital and technological capabilities that will drive Ireland’s engineering sector forward. These efforts are expected to be especially important in areas related to decarbonisation, where advanced digital skills are key to developing sustainable solutions.

Additionally, EII welcomes the government's intention to publish an Action Plan for Competitiveness and Productivity within the first year. The plan is expected to provide critical insights into how Ireland can maintain and enhance its global competitiveness, especially in sectors like engineering that are increasingly reliant on innovation and research.

The government's emphasis on strengthening research capabilities is also a positive development for the sector. By investing in R&D, Ireland can continue to lead in emerging technologies, such as AI, automation, and sustainable engineering practices, ensuring that its businesses remain competitive on the global stage.

Conclusion: A Promising, Yet Challenging Future

While the Irish engineering sector faces a number of significant challenges, including rising costs, skill shortages, and geopolitical headwinds, the overall outlook remains optimistic. Businesses are taking proactive steps to improve profitability, invest in new technologies, and meet sustainability targets.

As the sector navigates these obstacles, collaboration between government bodies, industry leaders, and educational institutions will be essential in fostering innovation and growth. With continued investment in digital and AI technologies, as well as a strong focus on sustainability and talent development, Ireland’s engineering sector is well-positioned to build on its strengths and continue to contribute to the country’s economic prosperity.