The economy is likely to see a limited increase in unemployment along with a drop in growth to 3.25 per cent next year, according to the Central Bank.
In its latest quarterly review, the bank says economic growth will fall to 4.75 per cent this year from 6.5 per cent last year, with a further drop to 3.25 per cent in 2008.
However, while the bank says the economy is still performing solidly, it says the degree of impact of the uncertain international environment remains difficult to assess.
Forecasts from the major international economic institutions suggest that the economic impact of the recent turbulence will be greatest in the US.
The bank warns the global credit squeeze on the US economy could influence Ireland's economic outlook.
It says next year's predicted drop in economic growth is attributable to slower domestic demand and is likely to be accompanied by an easing in inflationary pressures and some limited rise in unemployment.
While the close relationship between Ireland's economy and that of the US could be a risk, the bank emphasised that the responses of domestic social partners and policymakers should ensure that the adverse effects "are minimised and that economic growth continues at a satisfactory rate."
Activity in the housing sector remains strong with a demand for housing "reflecting continuing income and employment growth".
This demand reflects continuing income and employment growth, according to the review.
However, a slowdown in the rate of overall credit growth from a peak of over 30 per cent in June of last year to just over 20 per cent in July of this year reflects the moderation in both house prices and the output of new housing. A further easing in credit growth is expected through the remainder of this year and into next year.