The Irish economic boom is over. What follows should not be the end of the world but, for many businesses and households, it will be a more difficult world than the one to which they have become accustomed.

I don't believe Armageddon is at hand but neither will the transition to more modest growth be painless.

No single factor can fully explain the slowdown. But one frequently overlooked aspect is that the economy has had several years to work through the windfall gains from a low interest rate and taxation regime. The resultant ratcheting-up of spending, particularly on property and cars, is clearly behind us.

A more widely recognised and crucial element has been the fact that capacity limits, in the form of shortages of workers and infrastructure, have been hit. The "natural" slowing that these emerging constraints implied might not have been too worrisome in isolation. That said, I've long been concerned that Irish firms and workers would not easily adjust to an environment in which double-digit increases in earnings are no longer the norm.

If some loss of economic "altitude" was inevitable this year, severe turbulence in the global economy has made it very difficult for the Irish economy to gently glide to a more modest growth path.

The second half of 2001 could be quite difficult for the US economy. Ominously, the Federal Reserve noted that the downturn could now be broadening beyond the manufacturing sector. As a result, a turnaround in the US may be more distant and more sluggish than previously hoped.

The recent surprise rate cut by the Bank of England and this week's easing by the Bank of Japan emphasise that economic weakness is a global problem.

A cryptic reference to "increased uncertainty" suggests even the European Central Bank (ECB) recognises the direction in which prevailing economic winds now blow. Unfortunately, the ECB will likely deliver only a modest boost to growth in the months ahead.

The fact that the diplomatically constrained International Monetary Fund has chosen to highlight downside risks to the Irish outlook indicates clearly where the balance of risk now lies. Overheating risks may have receded but a hangover lingers.

There is considerable evidence that downward pressure on prices worldwide is intensifying. To the extent that lower Irish inflation reflects international economic woes, it is scarcely a comforting development, particularly as the Irish data show pockets of pressure remain in a range of service activities.

The Republic's competitive mettle could be severely tested in the next year or so. Importantly, Irish exporters may no longer have the safety valve of a weakening euro to boost profitability. Indeed, foreign exchange movements could act as a further brake on economic activity in the year ahead.

A poorer international climate is already springing nasty surprises on the Irish economy. Unfortunately, gaps in the data make it difficult to measure short-term trends precisely. However, there has been a clear step-down in most categories of domestic spending in recent months. Recent export and production data have also softened.

Recent income tax data show revenues in July more than 4 per cent lower than a year earlier. This is hard to square with the consensus that solid income and employment growth is continuing.

It seems the Irish economy is no longer showing any substantial forward momentum relative to the early months of the year. Indeed, there is a risk that the Irish industrial sector, if not the broader economy, is slipping into recession, at least in the technical meaning, which regards recession as two consecutive three-month periods of declining output.

Unfortunately, a statistical fog clouds this critical issue. Strong momentum late in 2001 implies a very positive "carry-over" effect this year. So, in spite of current difficulties, this year's GNP growth rate should still be in the region of 5 per cent. However, this offers little comfort. It says more about where the Irish economy has been than where it is going.

With many businesses and households experiencing a flat period at best, a difficult adjustment to slower growth could continue for some time.

Much has been written about the company-specific aspects of last week's Gateway announcement but further high-profile job losses may be hard to avoid. Some have argued that the impact of these losses can be readily contained. This may underestimate "spill-over" risks, not only in the geographic area of closures or in the wide range of sectors that provide services to these firms, but through damage to business and household confidence.

The key issue is whether next year's growth rate will soften further. This hangs in the balance. With a small amount of good fortune, easier energy prices and responsible policy-making at home and abroad, we may get through a difficult six to nine months, and activity could recover sufficiently to deliver growth near 5 per cent again in 2002.

While the Tβnaiste was right to urge against panic, businesses and households must tailor their cloth to a changed economic climate. It should be remembered that private sector credit grew roughly twice as fast as money GNP during the boom.

The Republic's public finances will also suffer. Although a modest Budget stimulus may be more appropriate now than before, the Minister for Finance Mr McCreevy would do well to heed the Tβnaiste's advice. Like everyone else, he must be mindful that errors made at times like these are often the hardest to correct.

Austin Hughes is chief economist at IIB Bank