Northern Ireland's economic woes have an iceberg quality. On the surface things look manageable. It was, after all, the fifth-fastest-growing region in the UK last year; Belfast is having a property boom and unemployment is on a par with the Republic.

But look beneath the headline statistics and a very different picture emerges.

Northern Ireland's private sector is not just small in size, it's small in scale too. There is only one public limited company (UTV); just 65 companies employ more than 500 people; and 98 per cent of businesses are small to medium-sized, with 89 per cent employing fewer than 10 people.

Meanwhile, the public sector, which until now has kept the North afloat, is contracting. Chancellor Gordon Brown has made it clear that the North's £6 billion (€8.9 billion) yearly subvention from UK taxpayers isn't going to be available much longer.

The Northern economy is so dependent on the public sector that the current public spending review is likely to affect many towns, as education and library boards, hospital trusts, local government and council offices are amalgamated. In both the civil service and at the ministry of defence, job losses are inevitable.

Once the problem of growing Northern Ireland's private sector to fill the space left vacant by a contracted public sector becomes apparent, so too do a whole host of other problems.

Even with a bloated public sector, over half a million people in Northern Ireland are still classified as "economically inactive", more than the 464,000 that are in full-time employment. While at one end of the scale Northern Ireland's education system produces many fine graduates, one in four school leavers still lacks basic literacy and numerical skills.

From economists to trade unionists, there is widespread agreement that there's trouble ahead.

If there was progress at all this year, it was that the sheer scale of the challenge began to be fully appreciated by local politicians. But, even if they do manage to get into government by the March deadline, it won't be easy to turn things around.

"It's an unusual economy and an unusual society," says Philip McDonagh, chief economist with Pricewaterhouse Coopers in Belfast. "The politicians are going to have a budget that's growing but at a much slower rate than previously and they're going to have to manage all these competing demands, particularly from the health and education sector. One of the consequences of having a limited pie is that economic development . . . is going to suffer. The tourism budget as well is going to be squeezed," he says.

"The private sector needs a certain amount of time and space to exploit the opportunities that are out there in the market. We have a major number of small businesses - that means we don't have the base number of firms we need for external investment. In order to get that we need some sort of incentives and packages for both external investors and indigenous companies," he says.

While there has been a high-profile campaign to reduce corporation tax in Northern Ireland in line with the Republic, McDonagh, like many others, does not believe such a move would solve Northern Ireland's problems.

Issues like skills and even a shift in cultural mindset are as important he believes. PricewaterhouseCoopers, for example, often finds it difficult to attract graduates out of the public sector to work as economists in the private sector.

"Culturally there's still a huge social stigma to failing in business here. We need a bit more risk-taking - we're a risk-averse society. It goes back to the public sector where you don't really need to take risks. There's a mindset that needs to change over the coming years. There's a lot stacked against it."

Jobs are the critical issue, according to Peter Bunting of the Irish Congress of Trade Unions (Ictu). While politicians argue over whether a deal is possible, Northern Ireland's traditional manufacturing base continues its decline. Ictu has identified over 1,000 jobs under threat in the private sector and a potential 8,000 in the public sector.

Bunting has met all the political parties and given the same message - that the combination of increased domestic charges and job losses will cause pain. "It raises the issue that Northern Ireland's economy is going to be more dysfunctional than it is currently and that's a terrible indictment of what's going on," he says.

Like McDonagh, he points to skills as the obvious way forward. "Northern Ireland hasn't a mission unless we upskill . . . we need to move away from this emphasis on academics, on producing lawyers and doctors or whatever, and move into science and technology as well and skill up."

If the iceberg is only becoming visible to local politicians, it has yet to be fully appreciated by the broader public. The retention of academic selection - which allows school children who pass the 11-plus exam to attend more academically inclined grammar schools - has been a most contentious political issue of late and was a top priority at political negotiations at St Andrews. And for whatever reason, the 25 per cent of Northern Ireland's school leavers who lack numerical and literacy skills make little impact on the public consciousness.

According to Glynn Roberts of Northern Ireland's Federation of Small Business (FSB), the lack of basic skills affects even the smallest companies.

"We're not going to be sustainable when we have that number of school-leavers who lack basic skills. It's absolutely critical we address that," he says.

According to Roberts, if small business has been the backbone of the private sector economy throughout the Troubles and during the fledgling peace process, it has also had to contend with one of the highest cost bases in the UK - in terms of insurance and energy for example. These are other issues he wants the politicians to address.

"I think there are tough times ahead. The treasury is very much putting the squeeze on Northern Ireland. If you look at the global economy it's moving far ahead of us. China and India are putting out thousands of engineering graduates every year.

"Northern Ireland has a huge amount of catching up to do. Our educational system is very academically focused. It's important that we have choice but it's important as well that we have the right vocational education that employers need."

Northern Ireland's economy may have few bright spots, but there are plenty of ideas for the politicians to mull over. Ictu, for example, has suggested that long-term job seekers be given apprenticeship training during major infrastructure projects.

Both it and the FSB have come up with plans for a mix of grant aid or rates reduction to boost investment in research or workplace training. Nearly everyone wants the current review of public spending to be slowed down to give Northern Ireland time to adjust to a new economic landscape.

And, not surprisingly, everyone wants a locally elected government dealing with issues that are set to have an effect - perhaps severely - on local people. Speed is of the essence.

"We're moving in the right direction," says PWC's McDonagh. "It's a question of whether we can move fast enough."

Bunting believes time has already been lost. "When we get to March and by the time the Assembly sits down again it'll be summer and that's another year gone out of economic planning, out of them debating the future, of them making hard decisions as well.

"I'm back here four or five years now and one of the good things is that the economy is dominating the debate. One could also be cynical and jaundiced and say that it's because of the review of public administration, which will probably impact on every small town. They're all looking at their positions and fighting their corners. There'll probably be severe internal difficulties for parties at the end of this, just as much as there will be for the trade union movement."