Signs of a more moderate growth in the economy have accumulated over the last couple of months. The Exchequer returns for the first quarter, for example, showed a pronounced slowing in tax revenue growth. The latest banking statistics show private sector credit in February expanding at about half the pace of a year earlier. The Live Register numbers for March indicate a seasonally adjusted fall of just 1,300 over the first three months of the year, the smallest in five years. Survey evidence suggests a pronounced softening of business sentiment, especially on exports.

Granted, the data have not pointed uniformly to a slowdown. The latest figures on exports and on industrial production, taken on their own, might suggest that the Celtic Tiger is roaring away as lustily as ever. But these numbers, because they are heavily influenced by the activities of a relatively small number of multinational firms, and correspondingly distorted by their accounting practices, are poor barometers of the state of the economy.

The balance of statistical evidence is strongly weighted in the other direction. The most compelling evidence is contained in the latest Quarterly National Household Survey, which shows that employment growth decelerated from 6.1 per cent to 3.8 per cent over the past year. It also showed labour force growth, a key determinant of how fast the economy can grow, slowing from 5 per cent to 2.5 per cent over the same period.

Several dampening influences on economic activity have either emerged or become more potent since the start of the year. The downswing in the US has gathered momentum and a weaker trend has become evident in Europe. The shake-out in the information and communications technology industry has intensified and has been marked by a procession of profit warnings and payroll cuts by leading firms in the sector.

At home, the restrictions on movement and activity adopted in an effort to limit the spread of foot-and-mouth disease have created a hostile environment for many businesses, especially those engaged in tourism.

Not surprisingly, forecasters have had to reassess the State's short-term prospects. In light of the more difficult international environment, and the impact of the foot-and-mouth scare on tourism, we have cut our export forecasts. Partly for the same reasons, but also reflecting weak house-building activity, we have reduced our forecast of fixed investment. And because we now think that personal income will rise more slowly than previously expected and that households will be somewhat more cautious, we have reduced our forecast of consumer spending. As a result, we have cut our GDP forecast for 2001 to 6 per cent from 8 per cent while our GNP forecast is revised down from 6 per cent to less than 5 per cent.

These figures imply that economic growth this year will slow to about half the pace of last year. This is a steep deceleration. It could be problematical if economic agents' behaviour has been based on the expectation that the very high growth rates of recent years would persist. However, it is worth benchmarking our downward revised forecast for 2001 against the economy's "potential" growth rate, estimated on the basis of labour force and productivity trends.

As already mentioned, labour force growth had slowed to an annual rate of 2.5 per cent by the end of last year. It may accelerate again in 2001, but this would be surprising. I think it more likely labour force growth this year will be 2 to 2.5 per cent. Given this, and productivity growth of 4 to 4.5 per cent - broadly in line with the average of recent years - potential GDP growth is in the 6 to 7 per cent range.

Our revised GDP forecast for 2001 is within this range, albeit at the bottom of it. As such, it is consistent with no more than a very modest rise in unemployment. In other words, GDP growth of 6 per cent is not much below the best performance that it is now reasonable to expect the economy to register. A fear that attaches to this year's slowdown is that it may be the precursor of another steep decline in 2002. We don't see it like that. At least one of the factors currently weakening demand, namely the influence of foot-and-mouth, will have unwound.

The international trading environment should improve, as the US economy pulls away from recession. On the other hand, Irish producers will experience some erosion of competitiveness in the period ahead, as costs of production here rise relative to overseas. Reflecting the balance between these opposing influences, our revised forecasts for 2002 see Irish GDP growing at a similar rate to this year's 6 per cent.

There are several important downside risks to this view. One is that the US endures a prolonged recession - still a risk despite the aggressive interest rate cuts by the Fed, the latest of which was announced last week. This would severely squeeze growth in Europe.

From an Irish perspective, the negative consequences of such an outcome would include a drying up of foreign direct investment inflows and a steep appreciation of the euro against the dollar and sterling, which would result in a bigger loss of competitiveness by Irish producers than otherwise.

Another risk is that the slowdown under way in Ireland, together with the stream of bad news from overseas, will have a disproportionately negative effect on confidence, and induce a sharper adjustment of household and corporate spending than we have provided for. One channel through which such a negative effect on confidence could be transmitted is the housing market.

OF COURSE, there are upside risks to our view as well. It is possible that we have underestimated the economy's momentum, in particular the "pipeline" effects on output, exports and employment of the big inflow of foreign direct investment that occurred during the course of last year.

Indeed, I would say that if the outturn for 2001 is to be substantially different from the forecast, it is more likely to be higher than lower. However, I would offer the opposite assessment of the balance of risks in relation to 2002.

Finally, it is worth remarking that not long ago it was thought the economy was growing too fast. Then, the principal concerns of commentators related to the effects of rapid growth, congestion, labour shortages, spiralling house prices and so on. The current slowdown, provided it does not cause a significant rise in unemployment, should be welcomed therefore. It promises some relief, albeit at the margin, from the pressures on productive capacity that have built up in recent years.

Jim O'Leary is chief economist at Davy stockbrokers