When set against the appalling loss of life in last week's terrorist attacks in the US, the economic and financial implications of these dreadful deeds seem unimportant. Yet, analysts must try and assess the consequences.

The terrorists have struck at a time when the global economy is in a very weak state. Both the US and European economies are close to recession, while the Japanese economy is already there.

The slowdown of the world economy has had a severe negative impact on the pace of activity in the Republic.

The weakening of the global economy has been most pronounced in the information and communications technology industries, which have been major contributors to the rapid growth of the Irish economy in recent years.

The impact of the global slowdown, not surprisingly, is very evident in Irish external trade data. Merchandise exports peaked in the final quarter of last year before declining in the opening two quarters of 2001.

Merchandise imports have weakened sharply - up by just 1.7 per cent year-on-year in value terms in the second quarter of 2001 compared to a 25 per cent rise last year.

In the manufacturing sector, output fell by 2 per cent in the second quarter from first quarter levels, with large declines in electronics and pharmaceuticals. The spate of factory closures announced since mid-year points to a continued decline in manufacturing output over the second half of the year.

The weakness in activity has spread to domestic sectors of the economy. Housebuilding has weakened considerably this year. HomeBond registrations, a good proxy for housing starts, are down 20 per cent year to date. Overall, it is estimated that there will be an 11 per cent decline in the number of houses built by the private sector this year.

Consumer spending is also weakening. Car sales are down 30 per cent year to date. Weakening tax receipts point to a marked slowdown in general consumer spending over the summer months. Tourist numbers and spending seem to be well down, reflecting the impact of the foot-and-mouth disease as much as the global slowdown in economic activity.

There was clear evidence, then, even before last week's attacks, that a sharp slowdown had taken root in the Irish economy. This broad slowdown is gaining momentum as the world economy teeters on the brink of recession.

The terrorist attack seems likely to push the US economy, and possibly even the global economy, into such a slump. Consumer and business confidence in the US has suffered a severe psychological blow. The damage to confidence will be added to by the sharp drop of the stock market this week.

Consumer spending is likely to be scaled back, especially on travel, entertainment and leisure. With output disrupted by last week's events and demand likely to weaken, US corporate profits are set to come under further downward pressure in coming months.

The inevitable result will be a further curtailment of business investment and more job lay-offs in an already weak US economy. In our view, US growth is likely to turn negative in both the third and fourth quarters of this year and the recession may well extend to the first quarter of 2002.

The implications for European economies, and the Irish economy in particular, are clear. First, a further fall-off in exports to the US will become evident. Second, a further slowdown in inward investment from the US will make its impact felt. Third, there will be a marked decline in US tourists travelling abroad. All of this will add to the downswing in European economies, especially the Republic.

Two sectors of the Irish economy that have shown marked weakness this year - manufacturing and tourism - can expect to see a further downturn in activity following the events in the US. Meanwhile, the slowdown in Irish exports looks set to deepen.

The net result is that GNP growth in the Republic may fall to 5.5 per cent this year from 10.5 per cent in 2000. However, this masks a marked deceleration in the pace of activity over the course of 2001.

By the end of the year, the annual growth rate of the economy is likely to have slowed to a snail's pace. Hence, the economy will enter 2002 with very little momentum.

On the bright side, aggressive monetary easing combined with the substantial injection of liquidity by central banks into the financial system in recent days, should help create the conditions for a rebound in global economic activity by the middle of next year.

Global growth for 2002 as a whole, however, is likely to be very weak. Hence, even assuming a pick-up in global economic activity by mid-2002, Irish GNP growth next year may only be 3.5 per cent.

Such a relatively low growth rate for the Irish economy would imply a rise in unemployment and a possible movement of the budget balance from large surplus into deficit. By 2003, economic growth should have picked up to its trend rate of 5 per cent to 6 per cent.

Oliver Mangan is chief bond economist at AIB Group Treasury