The Irish engineering sector is experiencing steady improvement in business sentiment, according to a new report.

The Engineering Sector Manufacturing Report 2025 published by the Ibec group Engineering Industries Ireland (EII), found overall optimism is on the rise.

However, the sector continues to grapple with challenges such as attracting skilled talent, managing labour costs, and navigating weaker global economic growth.

While confidence is improving, one-third of respondents still rate their organisation’s outlook as average or poor.

Rising costs dominate concerns, with 79% of businesses anticipating wage growth as a key pressure point. 

Innovation is seen as being key to progress with 63% of businesses planning increased investment in sustainability and 58% enhancing digitalisation efforts indicating a shift towards smarter, greener operations.

However, optimism is tempered by falling export sales, expected to decline by 22%, with capital investment, and R&D activity both expected to fall by 12%.

Talent attraction, rising labour costs, and weaker global growth are the top challenges facing the sector.

Half of businesses said they were focused on improving profitability.

While increasing production and addressing labour costs was cited by 46% of respondents. 

Sustainability continues to dominate the agenda, with 83% of businesses engaged in initiatives to meet regulatory or parent company requirements.

Additionally, 50% of businesses are adopting or enhancing artificial intelligence initiatives to improve efficiency and productivity, although just 25% rank AI among their top priorities. 

Pauline O’Flanagan, EII director said: “The engineering sector, which represents exports of €8.8bn and employs 50,751 people, continues to show optimism despite persistent challenges related to talent, costs, and geopolitical headwinds.

"It is encouraging for the sector to see some of the enterprise plans outlined in the new government programme, which have been central to much for the sector’s engagement with Government.

"Notably, the focus on a National Digital Skills Strategy is critical for unlocking Ireland’s potential in digital and AI technologies, particularly their application in decarbonisation.

"In the context of Ireland’s global competitiveness, which is vital to our sector, we welcome the plans to publish an Action Plan for Competitiveness and Productivity within the first 12 months, as well as the emphasis on strengthening our research capabilities."