The economy has begun to slow as labour shortages and the slowdown in the US and the rest of Europe begins to take hold.

Most of the evidence points to the economy having peaked around the middle of last year, with the rate of growth slowing ever since.

This may well be compounded in the coming months following the confirmation yesterday that two cases of foot-and-mouth disease had broken out in Co Louth.

An epidemic would cause serious setbacks for the economy - and its impact would be felt far beyond farming communities and those employed in the food industry.

Even before the outbreak was confirmed, hoteliers had complained of losses due to restrictions on travel and sport imposed by the Government in its attempts to prevent the disease spreading here.

And while food producers in the Republic gained something of a kickback when the disease struck in Britain, the opposite can now be expected as importers of Irish goods cancel orders in attempts to prevent disease spreading from the island.

With cases also confirmed in France and the Netherlands, more vigorous efforts to contain the disease can be expected.

Growth is still strong in most sectors, but it is well down on last year's peaks. One area in which the slowdown has manifested itself clearly has been employment, where growth has slowed substantially in the last nine months. Recruitment companies have reported some falling off in demand, while the appointments sections of newspapers are carrying significantly fewer advertisements, most notably for jobs in the technology sector.

US giants such as Intel, Cisco, Hewlett Packard and Compaq have all issued profits warnings in recent months and begun implementing staff cuts, although their Irish operations have been relatively unaffected. However, the profit warnings and job cuts have lead to fears that US investments in Ireland could yet be under threat.

IDA Ireland points out that there is a difference between what happen to the shares of high-tech companies on the stock market and in the real world of buying and selling their products. There is also a difference in demand between the US and the EU, with the latter expected to grow more rapidly than the US this year. "Multinationals are here to service Europe, the Middle East and Africa," says an IDA spokesman.

Growth is at approximately half the level of the last five years. However, it is probably buoyant enough for firms to retain their Irish operations, but not enough to justify major expansion plans.

Approximately 1,000 jobs have been lost in the high-tech sector in the last five months. The IDA is forecasting overall job losses of 9,000 by the end of the year, many of which will come from this sector. But the agency insists that this is necessary if we are "to move up the value chain".

The really big difference between now and former years is there are likely to be substantially fewer new jobs in the pipeline. If the agrifood sector shuts down due to foot and mouth, there will be lay-offs.

Far fewer oversees companies are considering locating in Ireland. Overall, job creation may be in the region of 10,000 to 12,000 this year compared with last year's record of 23,500. There is some comfort in the fact that the figures are still higher than pre-1995 job creation figures, but the difference is not substantial.

Despite this, the job agency remains upbeat, pointing out that some companies still have expansion plans. It points to Xilinx in CityWest, which is promising another 500 research jobs, and to the confirmation that Xerox will still be expanding despite its global setbacks.

Intel is still due to proceed with its new Fab24 plant, but last week it dramatically postponed construction on it for nine months. "There is some slowdown in high-tech electronics," says an IDA spokesman. "It cannot be guaranteed there are no shocks around the corner but there are none on the books and we may not be as badly off as people might imagine based on global headlines."

Mr Declan Martin, policy director of the Dublin Chamber of Commerce, has just returned from a trip to Silicon Valley. He says most of the major expansion plans for Ireland are now on hold. But he insists the US firms are still positive about Ireland, pointing to low corporate tax rates and the availability of bandwidth - vital for transferring data at high speeds - from suppliers such as Global Crossing. Interestingly, Mr Martin says labour shortages are not considered to be a big problem, as most of the major players see shortages as a global problem rather than specifically Irish.

The IDA also points out that there is a huge counterbalance to job losses when the pharmaceutical and healthcare industry is considered. It employs about 12,000 people, but this rises to 23,000 if chemicals are included. It is a sector that is still buoyant. The IDA has recently won some of Europe's largest projects in this area, including Cardinal Health and American Home Products. Overall, 16 out the top 20 companies globally have plants in the Republic, attracted by low corporate tax rates, despite the global consolidation of the sector.

IBEC's Mr Matt Moran agrees with this view. "If anything, Ireland has been bucking the trend. There is no slowdown."

Still, other areas outside the obvious agriculture and tech sectors are also slowing - in services and support particularly. Mr Brian Walsh, chief executive of the Institute of Chartered Accountants, says there is a definite slowdown in activity. "It is very telling that all the large firms are starting to resurrect their insolvency or restructuring departments."

He added that the demand for accountants was still strong but not as strong as a year ago.

In contrast, according to Mr Martin, around Dublin generally the only blip is foot-and-mouth. "There is no doubt that sectors such as hotels, pubs and taxis are experiencing a visible slowdown and it would be fairly serious if that were to continue further into the season."

Hotels in particular were severally affected by the foot-and-mouth factor even before yesterday's development. According to Mr John Power of the Irish Hotels Federation, the sector had been expecting growth of around 6 per cent this year. But about £20 million of bookings have been lost since the foot-and-mouth restrictions were introduced. Inevitably, that will now worsen. Before the outbreak Mr Power warned that up to 20,000 of the 60,000 people employed in the sector could face job losses if the restrictions continued.

Even so, other domestic areas of the economy remain buoyant. Car sales are still high, although not as strong as last year. SIMI deputy chief executive Mr Alan Nolan said sales were likely to exceed 180,000 this year, off the highs of last year but still a strong increase over 1999.

Construction is also performing strongly but is again below recent record levels. The Construction Industry Federation (CIF) chief executive, Mr Liam Kelleher, says construction output is likely to be about 7 per cent this year compared with rate of 10 per cent or more in recent years.

"This is still an exceptionally strong rate of growth," he says. He points out that downward pressure on growth is attributable to the number of new houses being built, which is down around 40 per cent on last year in urban areas. However the National Development Plan is likely to result in growth of as much 12 per cent on the civil engineering side of the business, while retail, commercial and office block activity is still very strong.

What seems certain is that the threats to sustaining Irish economic growth are mounting. There are the obvious risk of the slowdown in the US economy and particularly the retrenchment in the high-tech sector.

But there are also domestic risks - especially with labour force growth slowing. With foot-and-mouth now confirmed in the State, the economy faces an immediate and significant threat.

Whether it survives the storm and simply eases back to a sustainable rate of growth remains to be seen.