Economics: You go away for holidays for a few weeks and when you come back the world economy is recovering. "Juslikethat", as Tommy Cooper used to say.

Pre-departure, in late June, it was all talk of deflationary spirals and rising unemployment. Now "key indicators" are turning upwards, confidence is flooding back and economic reports read like the old Ian Dury and the Blockheads' Reasons to be Cheerful. It is only a matter of time, we are told, before this rising international tide starts to lift the Irish economic dinghy, returning us, if not to the boom years, to steady rates of economic growth.

Now I hate to be a curmudgeon, but I'm not convinced it is all going to happen so neatly. From the Irish viewpoint there are two key questions. How buoyant will the anticipated recovery be? And, if it arrives, how are we positioned to benefit? There are reasons for caution on both of these fronts.

The good news is that there are some encouraging signs. In the US confidence has lifted, the corporate earnings outlook has improved, manufacturing is benefiting from the lower dollar and there is talk that the autumn could see the long-awaited pick-up in investment necessary to underpin recovery.

The medicine of tax cuts and historically low interest rates in the US is having some impact - latest figures show 2.4 per cent growth in the second quarter and the Bush administration expects the economy to be growing at an annual rate of 4 per cent moving into next year.

Even in the euro-zone economies, things seem to have at least stopped getting worse. Survey evidence points to some better indications in manufacturing in many of the big economies, including Germany. More optimistic analysts also believe that reforms to the German jobs market may be starting to have an impact, even if a four-month run of falling unemployment ended last month .

Internationally, a Goldman Sachs survey of 100 top firms this week pointed to some optimism about corporate activity and investment later this year. On the financial markets, long-term interest rates - or bond yields - are anticipating some pick-up in growth and inflation.

So are the happy days on the way back? Certainly the US indicators are encouraging and many have turned positive during July in particular. This suggests that the world's largest economy could have bounced off the bottom and that growth prospects have picked up.

However there are questions about the sustainability and, more particularly, the pace of any recovery. The US jobs market remains depressed and will be a key indicator over the coming months. A sustained recovery will require a chain of corporate recovery, spurring increased employment, boosting consumer demand and so on.

Lurking behind this are questions about how much the excesses of recent years will spur recovery. US household debt levels remain high and, crucially, the balance of payments deficit stands at more than 5 per cent of US gross domestic product, requiring inward investment flows of some $2 billion (€1.8 billion) a day to finance. The classic remedy for this deficit would be for a sustained fall in the dollar to boost US exports and reduce imports, thus cutting the balance of payments deficit, which is mainly comprised of the gap between imports and exports. The threat would be that a further rise in US long-term interest rates necessary to attract investment funds from abroad would in itself damage the recovery.

While the US recovery signs are mildly encouraging - if not yet conclusive - the big euro-zone economies remain very sluggish. There have been some interesting survey signals that manufacturers anticipate rising output in the months ahead. However, these indicators are tentative and overall growth levels in the euro zone are still very depressed.

From the viewpoint of the small, open Irish economy, the recent positive indicators are, of course, good news. However, caution is needed in looking at the current signals. We are seeing the first signs of an international pick-up, which at best will be gradual and at worst could yet stutter and lose momentum. It will also - if it gathers pace - be an uneven recovery, with the US leading the way and the prospects for growth in the big euro-zone economies looking limited over the next year at least.

Meanwhile it remains to be seen whether a way forward can be found in the stalled world trade talks, the failure of which would seriously damage confidence.

Taking a reasonably sanguine viewpoint, the recent Economic and Social Research Institute (ESRI) Medium-Term Review said that this gradual uplift could boost gross national product growth from 2.4 per cent this year to 3 per cent next year, which would be a welcome improvement but still below the economy's potential to grow at 4-5 per cent and not enough to stop the unemployment rate rising towards 6 per cent. It would be the year after, the ESRI said, before more vigorous growth would resume.

There is also the question about how well-placed the Republic is to benefit from any international upturn. Cost competitiveness has been damaged in recent years and this has been highlighted by the rise in the euro's value.

This will at least limit the economy's ability to benefit from any international upturn and, if the euro rises further, could lead to an acceleration of the job loss trend.

Meanwhile, questions remain about wider competitiveness issues such as the impact of our poor infrastructure and the emergence of viable lower-cost locations in eastern Europe and the Far East.

An international recovery would, of course, provide "reasons to be cheerful" for the Republic - and growth would recover. However, there are a few dangerous hurdles to clear before our economy can return to the kind of strong growth that would see a return of the feel-good factor. With more job losses likely, recovery could still feel a long way off for the rest of the year.