(Bloomberg) -- The Irish government needs to focus its attention on fixing capacity-constraint issues that are impacting growth, the central bank warned.

Ireland is expected to grow moderately until 2026, the institution said Tuesday in its quarterly bulletin. The new projections forecast modified domestic demand at 2.1% this year, slightly lower than the 2.2% estimate three months ago. It then will accelerate to 2.5% in 2025 — up from a March expectation of 1.9% — and slow again in 2026, when its seen at 2%, in line with the previous prediction. 

The MDD metric has been described as a more accurate reflection of domestic activity than gross domestic product, as it attempts to exclude the impact of the out-sized number of multinationals based in Ireland.

That means fiscal policy now has a central role to play in maintaining growth, according to the central bank. Ireland is hindered by its economy nearing capacity: it’s almost at full employment, its population is rapidly growing, and there are infrastructure pitfalls, especially when it comes to housing, health and energy.

“As economic activity is expected to be broadly in-line with its medium-term potential, policy attention needs to more firmly turn to bolstering that potential by addressing capacity constraints and reducing structural vulnerabilities in the economy and public finances,” Robert Kelly, director of economics and statistics, said in the central bank’s report. 

Improving homebuilding construction is particularly crucial, the bulletin noted. “Looking ahead there is uncertainty around the timing and scale of future increases,” Kelly said. 

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