After seven years of exceptionally strong growth, it looks like the Irish economy is headed for a couple of years of sub-par growth rates. A trawl through the various indicators of activity suggests that the Irish economy began to flatten out in the first half of this year and probably went into decline during the summer months.

A number of factors have been responsible for this change of fortune but two stand out.

The most important influence has been the economic downturn that has occurred in our main trading partners. It is clear that, even before the tragic events of September 11th, global economic growth had slowed very appreciably. This has a particular significance for an economy that is as open as the Irish economy.

The Republic is one of the most open economies in the world. Last year exports amounted to 113 per cent of GNP.

When growth rates in the economies of our main trading partners slow, Irish exporters find it more difficult to increase sales - and that has a proportionately greater effect on the overall economy in the Republic than elsewhere.

In addition, there have been the particular difficulties encountered by the technology and tourism sectors. These sectors were by no means the only drivers of the success story of the 1990s but they were a very important part of that story. Having experienced very strong growth rates between 1993 and 2000, both sectors are now confronted with falling markets for their products.

We believe the trading environment over the balance of this year and into next year will remain difficult.

Most forecasters expect global recovery to be delayed until at least the middle of next year. Most technology pundits have a similar view regarding their sector.

Until recently we would have hoped that the tourism sector would bounce back next year, as the impact of the foot-and-mouth crisis waned. But those hopes have been dashed by the attacks in the US.

A number of domestic factors may also bear down on the economy over the coming year.

In recent years, consumer expenditure has been buoyed by strong growth in employment, wage increases and tax reductions. The impact of all three variables is likely to be significantly reduced. Overall employment levels have probably stagnated and may well be falling. Wage inflation will moderate as the labour market eases up, while the Government no longer has the money to finance big tax reductions.

Building activity is also likely to come under pressure. We have already seen a sharp fall-off in housing starts and will soon feed through to housing completions.

In the commercial market, we are now seeing a very steep increase in vacant rates in the office sector and that will severely curtail plans for new construction. The recent downturn in tourism will have a similar impact on plans to build new hotels and guest houses.

The net effect of these influences is that the economy will grow at a much slower pace than to which we have become accustomed. Our latest forecasts see GNP growth slowing from more than 10 per cent last year to around 4 per cent this year and just 1 per cent next year.

These revisions to our economic forecasts have been reflected in a reduction in forecasts for profit growth for those companies quoted on the equity market. At the start of this year, Davy analysts were forecasting growth of 16 per cent in 2001 for the profits of the overall market. That has been consistently revised downwards throughout the year as the economic evidence has unfolded. Our latest estimates envisage growth of just 5 per cent for this year and the trend in revisions remains firmly downwards.

A slowdown of this magnitude will have a major impact on a whole range of variables in the economy. Two, in particular, are worth mentioning - unemployment and the public finances.

Since 1973, more than half a million net new jobs - the number of jobs created minus those lost - have been created. That has been a remarkable achievement by any standards. In just seven years, we created twice as many net new jobs as we managed in the previous 30 years. In the process, the unemployment rate fell from over 16 per cent to less than 4 per cent.

Employment levels will, at best, stagnate - and hence the number of unemployed will go up by at least the number of new entrants into the labour force. That could push the unemployment rate to almost 6 per cent by the end of next year.

This week we saw the impact the slowing economy is already having on tax receipts. It now looks like the budget surplus this year could be as much as £2 billion (€2.54 billion) lower than was forecast at the start of the year. Next year it could be gone altogether.

That means some tough policy choices will have to be made. For the past several years the Government could afford to reduce taxes radically, accede to most demands for higher expenditure and still produce impressive surpluses. Those days are well and truly gone.

Robbie Kelleher is head of research at Davy Stockbrokers