BRIAN Lenihan was hammered in some quarters for declaring last December that the worst is over. But there are unmistakable signs the finance minister called it right in his budget speech.

There is still a long way to go in the recovery process. The Eurostat's ruling last week which elevated Ireland to the top of the budget deficit league is a timely reminder of how serious a fix we are in.

But there are economic indicators pointing to a light at the end of what has been a very dark tunnel. It will be a number of months before we know the exact economic performance of the first quarter of this year, but there are signs the economy has bottomed out and is possibly showing tentative signs of modest growth.

Consumer spending, taking allowance for seasonal factors, increased in January from the previous month and did so again in February, reflecting the improvement in consumer sentiment that has been showing up in surveys since the middle of 2009.

Business confidence levels have also improved considerably with as many firms now expecting their trading conditions to get better as those who expect it to get worse – a significant turnaround from last year.

The international economy, so crucial to Ireland's prospects, is also showing signs of recovering faster than had been expected.

With so much of taxpayers' money being poured into the banks, it's hard to see any positives. But, by the end of this process, the banks will have cleaned up balance sheets and be well capitalised.

This is crucial because, if and when businesses begin to expand again, it's essential that the lines of credit are there from the banks. Fears have been expressed that, having being so scarred by events of recent years, banks will shy away from any sort of risk and businesses will find it difficult to secure loans. But stripped of the bubble property lending and without foreign subsidiaries to fall back on, the banks have little choice but to re-engage in business lending if they are to return to profitability.

Of course, the taxpayer will have paid an enormous price for getting the banks back on a level footing. While there is every reason to hope the state will get its money back (and possibly more) in relation to AIB and Bank of Ireland, the possible €25bn that will have been poured into Anglo Irish Bank and Irish Nationwide is money down a hole.

Galling and all as that figure is, it will account for a relatively small percentage of our likely total national debt in four or five years' time. By then, our national debt is likely to have risen to €200bn (up from €50bn just two years ago). However, the vast majority of this debt will be caused not by recapitalising the banks but by the accumulation of the ongoing budget deficits that in some years have exceeded €20bn – all of which emphasises the importance of maintaining a sound budgetary policy.

While our national debt will probably equate to around 100% of GDP by 2014, it may not be that much higher than the likely EU average (there are already some EU countries that already have a debt-to-GDP ratio of 100%-plus. And it's lower than our ratio in the 1980s. So while this debt is obviously wholly undesirable, it is not unmanageable.

Nobody knows how Nama will work out. But given the high discounts or 'haircuts' applied, it does give some reassurance to those who feared the state would overpay the banks for the loans. It will be a long time before we know whether the government's claims that Nama will ultimately pay its way prove correct. But it seems fair to suggest that if it doesn't come close to that, it will be because the Irish economy has continued to stagnate over the coming decade. If that is the case, Nama will be the least of our worries.

Although unemployment won't reach the levels that we all once feared, it remains a serious concern. Economists are agreed it will take some time before a return to economic growth produces sizeable reductions in jobless numbers. Scandinavian countries found that was the case after their banking crisis of the early 1990s.

Unlike a standard recession, the big problem is that it won't simply be a case of workers going back into their old occupation once the economy picks up. There won't be a need for 250,000 people in the construction sector, regardless of how well the economy is doing. That is where retraining comes in – a difficult area in which to achieve success.

The Scandinavian experience suggests that resources and attention should be focused not on highly skilled workers – who tend to have the resources to re-invent themselves and who are hugely expensive to retrain – but on those who left education early.

This is going to be a major challenge but it is by no means the only one. Last week's development with Eurostat was largely an accountancy technicality, but if there is any slippage on the plan to restore order to the public finances, then we will be back in serious trouble a lá Greece.

But if whoever is in government sticks to that plan (and it's a big if), there are once again grounds for tentative optimism about the future.