Economics: Sentiment about the condition of the Irish economy has changed markedly in a matter of weeks it would appear, judging by the flow of data, survey evidence from consumers and business alike, and by the tone of media coverage.

The reality is, of course, that the picture was never quite as black as some painted it.

What happened to 6-7 per cent unemployment, the 20-30 per cent fall in house prices or the toughest budget in 20 years?

The cyclical recovery is also panning out as one might expect, given the policy stimuli currently at work in the global economy.

The result will be a return to potential Irish growth of 6 per cent or so by the second half of 2004 and, on that basis, it should not be too long before we see headlines like "the return of the Tiger" or even "the Tiger bites back!".

No-one can argue about the pick-up in global economic momentum, which is clearly apparent, most notably in the US.

The economy there expanded at an annualised pace of 3.3 per cent in the second quarter and by an astounding 7.2 per cent annualised in the third, which was well above the expectations which had centred on a 6 per cent increase.

This prompted most analysts to revise up their forecasts for US growth this year and next, with 4 per cent now seen as the likely figure for 2004, following a 2.8 per cent increase in 2003.

These figures highlight the extraordinary resilience and flexibility of the US economic system, which has survived terrorist attacks, corporate scandals, a prolonged and severe bear market in equities, not to mention military conflict.

The turnaround is most apparent in business spending, which is now increasing at a double-digit annualised rate, after falling at a double-digit pace in 2002.

President Bush's tax cuts are also helping and one could not rule out more if the economy should falter in the coming months, ahead of the November 2004 Presidential Election.

Indeed, employment has yet to pick up to any degree, which is dampening consumer confidence, but if the economy does deliver the scale of growth now expected, job creation will follow.

In Ireland, the publication of the second-quarter national accounts provided both reassurance as to current conditions and an insight into those areas that are likely to drive growth higher in the second half of 2003 and in 2004.

The figures showed real annual GDP growth of 2.1 per cent in the second quarter, up from 0.7 per cent in the first, with both consumer and Government spending expanding at a similar pace to the economy as a whole.

Government spending growth is clearly decelerating, however, in line with the Budget aim, and will play a minor role in sustaining the economy over the next few years.

The consumer will play a bigger role, in contrast, because rising confidence and employment is likely to prompt some acceleration in personal spending.

The main drivers of growth, however, are likely to be those components of spending which are most cyclical in nature - investment and exports.

Business investment in Ireland started to fall in 2001 and is still strongly negative, with residential construction and public sector investment outlays providing some positive offset.

This is a similar picture to that across Europe, but the US experience is testimony to the speed and scale of a potential turnaround.

Foreign Direct Investment inflows into Ireland were a record €10 billion in the first six months of 2003, so the resources are there when firms decide to spend again on machinery and equipment.

Now to exports, where the reported weakness is frankly a puzzle - the volume of merchandise exports in the second quarter fell by more than 10 per cent on the previous year and, if one includes export services, the total is still down by 8.1 per cent in the second quarter on the national accounts.

The figures have probably been distorted by the impact of a VAT fraud uncovered in the UK, but anyway sit uneasily with data for industrial production, which showed a 2.5 per cent annual increase in the second quarter.

One explanation is that the production went into stocks and, sure enough, stocks rose sharply in the second three months of the year.

However, I suspect that the price of exports has fallen more than the statisticians allow, with the corollary that volumes are not as weak as reported.

Whatever the current state of play, it would be surprising not to see a return to positive export growth in 2004, particularly to the US and Britain, which will add a further positive impetus to GDP as a whole.

The bottom line is that the consensus growth forecast for Ireland in 2004 may now be too low, and that a 4.5-5 per cent figure is likely.

One hopes that the Department of Finance's forecast for next year, which will underpin the 2004 Budget, was not finalised before the recent evidence of a pronounced turn in the economic cycle.