The economy is "on the up". But can it last? There is no doubt that entering 2004 growth was on an upward trend as we started to benefit from improved international growth.

However, headlines that "the boom is back" are misleading - the economy has shown extraordinary resilience over the past couple of years, but the outlook heading into 2005 will be crucially influenced by international factors. Growth should be maintained at a reasonable rate going into next year, but whether it can accelerate smoothly back towards the 5 per cent rate now seen as its potential remains in question.

The last couple of weeks have been notable for the coincidence of positive domestic economic news and nervousness internationally. At home we have had soaring tax revenues and increased growth forecasts, while abroad the US economy has faltered and higher oil prices are now a serious threat to global growth. Experience over the past 30 years shows that growth here generally moves in tandem with the international trend - the "boom" period was something of an exception.

While our high growth period did coincide with a buoyant era for the world economy, performance here was way ahead of the average. However, as the Department of Finance forecast points out, key once-off factors which fuelled the "Tiger" period of growth - particularly low interest rates and a sizeable pool of available labour - have changed.

Ireland can still outperform the international average, but the period of mega-growth is over and we are now moving back to "normal transmission." And this means that growth here will be heavily influenced by international developments.

A glance at the graphic above shows how growth here generally follows the world trend, often with a short lag. The Irish figures are for real GNP growth and the international ones are World Bank calculations for the world economy, so comparisons need to be made with caution.

It is clear how our economy suffered in the two oil-induced international downturns in the mid-1970s and early 1980s and the slowdown of the first couple of years of the 1990s, in which oil prices played a lesser part. Ireland started to pick up in the 1992-93 following a world recovery, but our growth in subsequent years massively outpaced the average.

In part, at least, this was a period of "catch-up" as living standards here rose towards the EU norm. As can be seen from the graphic, the Irish economy generally underperformed in the earlier period, particularly in the dog days of the 1980s, but has more than made up for this in recent years.

However, over the past couple of years our economy has moved back into synch with the global trend. And this is likely to continue.

The Department of Finance forecasts illustrate the point. Gross National Product growth this year is now forecast to be 4.2 per cent - more than twice the EU average. (The World Bank figures for world growth are pushed up by strong growth in China). The pick up from growth of 2.8 per cent last year is largely driven by exports, now expected to rise by over 5 per cent in volume terms this year, reflecting the improved international climate. The only other area of notable buoyancy is housebuilding, expected to hit a new record.

Consumer spending is expected to grow by a modest 3.6 per cent and public consumption - the measure of the growth in Government-driven activity - by a modest 2.1 per cent in volume terms.

If export buoyancy is to be maintained, then our markets must continue to be buoyant. And this is where the question marks are currently appearing. The US economy has, in the words of the Federal Reserve Board, hit a " soft patch".

The UK economy is being slowed a bit by high interest rates. And the euro zone is struggling to regain growth momentum, although much of the malaise in the composite EU figures is due to a continuation of Germany's dire performance. Only Asia, powered by the runaway Chinese economy, remains buoyant.

An analysis of our export figures published this week by the Irish Exporters' Association shows how this international picture is reflected in our export data. Exports in the first half are running 2 per cent ahead of the first half of 2003, but - reflecting the slowdown in US-driven global growth in recent months - the May and June figures show a 4-5 per cent decline on 2003 levels.

The breakdown of where exports are going also reflects the international trends, as well as currency movements, as exports outside the euro area have been affected by the strength of the single currency. In the first half exports to the UK and US were down 2 per cent.

Despite falling sales to Germany, buoyancy in other euro zone markets is reflected in an 11 per cent rise in our exports to these countries. Meanwhile, Asia's buoyancy is shown by an 11 per cent rise in exports to the Far East.

Up to recently, most forecasters had been expecting a temporary slowdown in the US in the second quarter after very rapid growth in the early months. However, the slowdown has been more marked than expected and higher oil prices have now been thrown into the equation, threatening to damage confidence and growth in consuming countries. Most analysts continue to expect the world economy to bounce back in the second half, but the confidence with which these predictions are being made has waned.

The Department of Finance document reflects these dangers. Their central forecasts - compiled before the recent oil price highs - are upbeat, with the economy seen to be on track to return to growth of 5 per cent in the medium term. However, never slow to see the cloud in a silver lining, the Department clearly outlines the risk.

These include the possibility that US growth "burdened by twin deficits" might not be sustained into 2005 and that euro area growth might falter. Higher oil prices are also a threat. The Department repeats its oft-made warning about the need to restore competitiveness. And, interestingly, it also warns of the risk of excessive private sector debt levels if mortgage borrowing continues at current levels.

The performance of the international economy and oil prices are obviously the key short-term threats. And they have implications for the budgetary situation.

The Department predicts that borrowing this year will be €1 billion less than forecast on budget day. This would reduce the exchequer borrowing requirement to €1.8 billion. However it is not accurate to say that this €1 billion is available to "spend" on budget day on goodies for next year.

The exchequer finances operate on a cash basis - more money this year means borrowing for 2004 is lower, but the excess is not "carried over" to next year. The slate is wiped clean on December 31st. What matters for next year is the tax growth forecasts of the Department of Finance.

Up to recently it had looked likely that they could pencil in a reasonably optimistic number, on the basis of a revival in growth. However if growth slows internationally, then Ireland will inevitably be affected and the outlook for tax revenue would be for a much lower level of increase. And of course the €600 million plus raised under the Revenue offshore scheme will not recur.

It would be wrong to overdo the pessimism. The economy has performed well and our public finances are in a healthy state. One way or another, the new Minister for Finance will not have to don the hairshirt (unless oil prices head into the stratosphere). However, just how much the new minister will have to spread around remains to be seen. It may yet not look quite as rosy in December as it does at the moment.