You've probably heard most of the blood-curdling stories by now. There's that one about the corporate wide boys dumping their flash unpaid-for cars in the airport car park before hopping on the emigrant Airbus. And the one about crèches haemorrhaging toddlers as their highflying parents stagger to the dole office clutching their P45s. Or the one about builders offering free Lamborghinis and villas in the sun in a last-chance-saloon effort to flog three-bed new-builds in commuter-land. Or the mother 'n' father of all the doomsday tales: the one about the once mega-rich tycoon spending his last million hiring bodyguards to protect him from his angry creditors.

You've probably heard them, and thought: Sure, and pigs fly. Perhaps it comes from a defiant optimism rooted in the Irish psyche, or maybe it's the head-in–the-sand example set by the government, but one of the hallmarks of the recession so far is mass denial. In Grafton Street on a seasonally crisp afternoon three weeks before Christmas, window-shopper after window-shopper blamed the media. "They've everybody scared witless," scorned a woman outside opulent Brown Thomas while, inside, there was 40% off Armani and Burberry and the shrine to Manolo Blahnik shoes was quieter than Christmas night. Not a customer stirred.

"We're from Dungannon. We came down on the train this morning and we were expecting an awful air of gloom," said Mary and Leo Hurson, emerging from a card shop on one of the world's most expensive retail streets. "But it's not bad at all. We decided we wouldn't buy a thing while we're here. Our son lives in Newry and they won't leave the house at weekends because of all the shoppers arriving from the south. There was a six-mile queue last Saturday."

In a country where, until early last summer, spa treatments and Prague weekends were de rigueur and only the "new Irish" had jobs because everyone else had careers, the truth is dropping slowly. "It's probably as serious as it gets," says IIB Bank economist Austin Hughes. "We're coming from a situation of growing 60,000 jobs a year to talking about 60,000 jobs being at risk next year. There's a good chance we'll have deflation in Ireland next year but there's 'good deflation' and there's 'bad deflation'. Good deflation means your euro will stretch farther with prices going down. Bad deflation means people become so fearful they postpone spending. If every consumer does that, you're in real trouble. We're into the second year of a significant downswing now and it seems to be accelerating. We'll probably see the economy bounce to the bottom at the end of next year, though that doesn't mean it will start improving straight away. The darkest hour is probably still ahead of us in the early part of next year."

It takes a while for the impact to ripple outwards. People started losing their jobs last year, but it was kept as quiet as a secret. Then suddenly, one morning we woke up to a banking crisis, a currency crisis, a panicky budget, stockmarkets wobbling like jelly edifices, pension funds teetering, 155 jobs a day evaporating, jumble sales and Oxfam replacing Barneys and the Place Vendôme as the places to shop. In the wink of an eye, those indefatigable Celtic pups you used to see in the morning gridlock, refuelling themselves from outsize thermos mugs of coffee at the wheels of their (or the banks') Maseratis and Porsches, have vanished.

The departed

They've gone to Dubai, according to Donal O'Donoghue, Dublin director of Brunel, the technical recruitment arm of the Premier Group. "During the boom times in the last 12 years, mid- to-senior white-collar people in the construction sector were getting incredible salaries because demand outstripped supply for the likes of architects, quantity surveyors and engineers. That demand has completely gone from the market. Guys who were on €150,000 six months ago can't even get an interview in Ireland. They're going to the UK and the Middle East. Six months ago, if one of them came to us, we'd have had 10 job offers for them in an hour. There's so much fear now. We have quantity surveyors applying for sales jobs and office-support jobs. The ones with no ties for whom moving overseas is a possibility can go to Dubai and earn €120,000 tax-free and have a lower cost of living. We have a client company coming over from Canada in the next two weeks to recruit for construction jobs all over North America."

Many of the recently departed have pitched up in the traditional diaspora destinations of New York, Boston and San Francisco, says Ciaran Staunton, who emigrated from Mayo 26 years ago and owns O'Neill's restaurant and bar on Third Avenue. "I live in Sunnyside, Queens, and we've seen all the new faces fresh from Ireland in the stores around here. A lot of them come to me in the restaurant looking for jobs and they seem to be getting on fine. I needed a bartender and I rang the first seven names on my list but they'd all got jobs already. One young guy came into me the other day. He said he was born in Queens because his parents had moved over in 1984. They got Morrison visas and went home to Ireland when things got better. Now he's back looking for work."

With their exodus goes their spending power too. These were the people buying the trophy houses that now stand unsold like epitaphs to the good times. In the big law firms, the insolvency and labour-law departments are enjoying a revival but the conveyancing corridors are like ghost towns. That was the bread, butter and foie gras that
sustained the 600 new solicitors coming out of college annually in the last decade.

"The activity in residential sales has reduced to a level we haven't seen in living memory. Values have been retracting for the last two years and business took a dive in the middle of last year," confirms Peter Stapleton, managing director of Lisneys, whose residential-sales team have been put on a three-day week until February. "We would see a lot of distress in families and in home ownership, from younger people to the elderly who've seen their life savings in shares fall in value and their homes, which were potentially tax-free lump sums, disappear. We expect to see more repossessions next year as people won't be able to meet their debts. I think 2009 will be the worst year and there should be signs in 2010 of it having bottomed out. But the market isn't going to come galloping back."

In Athlone, one of the regional towns that mushroomed during prosperity, senator Nicky McFadden is constantly being asked to intercede for people faced with losing their homes after losing their jobs. This week, she will accompany a constituent to her bank to plead for leniency. "This is a very proud woman. She never defaulted on anything. Her car was paid for, taxed and insured. She paid her mortgage every fortnight. She's been let go by a reputable firm. She has enough to make the next payment on the mortgage and after that she doesn't know what to do. I'm going to the bank with her to see if they'll agree to a moratorium on her mortgage. She's a frugal, thoughtful woman. She didn't squander money."

Deep depression

The realities of unemployment hit Sandra, who does not wish to be identified, like a wave when she lost her job in the accounts department of a Cork company 13 months ago. She had been earning more than €400 net a week. Suddenly, she had just €222 lone parent's allowance to fend for herself and her 12-year-old son.

"I went into a deep depression for four or five months. My mother was giving me money for coal. I couldn't buy my son little treats. If he asked me for €3 to go to the all-weather pitch with his friends, I had to say no. I was able to nearly halve my shopping bill when a Lidl opened near me. I work voluntarily in the Congress (Ictu) Centre for the Unemployed because it gets me out of the house. I've always worked and so have my family. Now everybody's struggling. But people are good. The hairdresser felt sorry for me and she did my highlights for free because I always had them done. I was able to pay her three weeks later. I'm borrowing money all the time. My son would like a Playstation 3 for Christmas... It was his birthday two weeks ago and he asked me for a party. I said I couldn't afford it so he paid for his own party out of the money he got in birthday cards from family and friends. He's a great kid. It's hard now to do the things I used to take for granted – being able to keep myself and my home and my son."

Not everything is gloomy about this recession, though. Emer Purcell of Hamper & Co in Dublin says she is repaying her customers' loyalty with a standard 10% discount this year. Though business is down by about 10%, she has taken on extra staff this year and is coping with a last-minute guilt splurge by employers who, having cancelled staff Christmas parties, are ordering modest hampers as gifts for their workers. "The media has everyone terrified and expecting Armageddon," she says. "When the banks regroup and the government steps up, there'll be a bit more confidence and business can come out of this better run."

Meanwhile, anybody with a secure job can look forward to lower prices and haggling for bargains with shop assistants who were once too posh to look at you. Harvey Norman might find Ireland "catastrophic" but John Lewis and Ikea are still coming. Have you noticed how the old rules of politeness are coming back?