The wait for the international economy to recover is taking on "Godot-like" proportions.

When framing this year's Budget, the Department of Finance anticipated that global recovery would boost the Irish economy in the second half of this year. Its decision to revise down its forecasts is mainly because the recovery has been delayed, even if there are now tentative signs in the US that growth is accelerating.

The downward revisions by the Department are significant enough. It has cut its forecast for gross national product (GNP) growth to 1.5 per cent, from 2.2 per cent at Budget time. Its prediction for gross domestic product (GDP) growth falls from 3.5 per cent to 1.5 per cent - the larger decline in this measure of growth is due to an expected sharp reduction in multinational profits, which are counted in GDP, but are excluded from GNP.

Like most forecasters, the Department has been forced to revise down its growth expectations across the board. Its forecast for consumer spending growth falls from 2.9 per cent to 2 per cent. The impact of the delayed international recovery is most clearly demonstrated in expectations of a 2 per cent fall in exports, compared with a Budget forecast of a 5 per cent rise. However, the Department expects the jobs market to hold reasonably well and is sticking with its earlier forecast that total employment will rise by 11,000 this year.

The only other significant - and somewhat puzzling - change in its forecasts is for the rise in Government consumption - the measure of day-to-day spending used in the national accounts - now expected to rise by 4.7 per cent, compared with an earlier forecast of a 0.6 per cent increase.

However, the Department insists that the overall target for spending growth will be met. This suggests that the Department expects current spending to rise more quickly than expected, but that this will be offset by lower-than-expected capital spending and possibly lower debt servicing costs.

Last night IBEC, the business lobby group, said this was worrying, as maintaining capital infrastructure spending was essential for competitiveness.

The Department lays most of the blame for the downward revision on poor international growth. However, it also warns that competitiveness must be rebuilt, warning that the rapid euro appreciation this year will hit profits.

Unless price and cost increases are cut to EU levels "we will lose jobs and growth", according to the commentary, a point emphasised in an accompanying brief comment from the Minister for Finance, Mr McCreevy. Part of the goal of the review is likely to be to prepare the way for a difficult budget. The forecasts "may be internationally downbeat", commented Mr Austin Hughes, economist with IIB Bank, who said that predictions of a falling inflation rate and lacklustre consumer spending would suggest slow tax revenue growth trends moving into next year. In turn this puts on pressure for spending cuts, he said, or for additional revenue to be raised through higher taxes.

A key goal of the Department of Finance will be to keep a lid on spending as it finalises negotiations with the other Departments on their plans for next year.

Slower revenue growth "necessitates a greater sense of prioritising Government spending", the review warns, while "a renewed emphasis must be placed on achieving greater efficiency and effectiveness in the delivery of public services to ensure maximum value for money is obtained".

In recent days, there have been figures suggesting some recovery in the US economy and that the worst may be over in Germany. However, the international upturn will be gradual and will take time to benefit growth here. This means that the Department is likely to be fairly conservative in forecasting tax revenues next year in the run-up to the Budget.

With public pay benchmarking adding to the budgetary pressures, the Government will face difficult choices between borrowing more, increasing tax revenues and sharply slowing spending growth in non-pay areas.