As the US sub-prime lending debacle continues to unwind across the globe and credit tightens, more and more companies are suffering from their exposure to bad debt, souring investor sentiment.

But according to economists, things aren't bad enough yet for Central Banks to intervene.

"Central Banks are very unhappy about the type of lending that we had over the past couple of years. They want risk to be repriced and they want banks to be a little more prudent, " said IIB chief economist Austin Hughes. "It will only become an issue when good firms find it harder to get credit."

Ulster Bank chief economist Pat McArdle believes it would take a lot more for the ECB to cancel its anticipated rate cut next month. "They are meeting on 6 September and it really all depends on what happens between now and then, " he said.

Turmoil on the markets came in a week when mixed figures were released regarding the Irish economy. The Permanent TSB/ESRI house price index reported that prices declined by 2.6% in the first six months of 2007, while the department of the environment reported that the number of home loans approved were down 21.9% in the first quarter when compared with the same period a year earlier. Employment in the construction sector was also down 1.1% in June, compared to June 2006.

Commenting on the housing market figures, John McCartney, head of research at estate agent Lisney, said there was going to have to be a period of adjustment. "People were used to seeing what their neighbour had achieved and then banging up the price by whatever percentage they thought they could get, " he said.

With news of the annual inflation rate also climbing to 5% last week, it was hardly surprising the consumer sentiment fell sharply to 74.7 in July, compared to 83.2 in June. While the Small Firms Association and ISME said that inflation was harming competitiveness, Hughes said much of it was down to the housing market. "Mortgage interest is up 44% on the year and but for that inflation is 2.5%. You also have to remember that rental costs are rising far faster here than elsewhere, " he said.

McArdle said that poor sentiment figures disguised the fact that the fundamentals of the economy still remained strong. "The man in the street isn't sure what is going on, but he sees a headline that says the ECB put 96bn into the banking system and reckons the world might be coming to an end. The economy is still fundamentally strong and likely to grow about 4% this year, " he said.