The robust employment growth recorded in 2006 is expected to slow next year as the construction sector starts to cool.

In its 2006 Irish Labour Market Review, published yesterday, Fás forecast that the 4.5 per cent rise in employment levels this year will ease back to 2.8 per cent in 2007.

The vast majority of new jobs will be created in the services sector rather than the construction industry, which has been a major driver of employment growth in recent years.

In fact, Fás predicts that the number of new construction jobs coming onstream will slip from 19,000 this year to just 1,000 in 2007.

A combination of higher interest rates and a significant reduction in the granting of planning permission in the first half of 2006 are highlighted as key indicators that a construction slowdown is on the horizon.

The Fás review warns that this slowdown could "affect the ability of the labour market to absorb migrant labour".

According to the report, some 300,000 PPS numbers have been issued to workers from the ten new EU states since enlargement in May 2004.

In 2006, the level of net migration reached 52,000.

However this trend is expected to moderate somewhat next year in response to slower employment growth.

The report emphasises that immigration has had a positive effect on the Irish economy and will help to avoid skills shortages in the future.

Displacement of local workers, which would result in job losses or lower wages, does not appear to be a major issue in the State.

Lead author of the report Brian McCormick said yesterday that Irish workers are generally "replaced" as they move up the value chain, rather than "displaced". Displacement could become an issue in the future unless relevant policies are put in place.

Due to the labour market's reliance on the construction industry, Fás has called on the Government to implement a contingency plan.

Such a plan should contain strategies focusing on the re-employment of any construction workers who may become redundant in the event of a slowdown in the housing market.

The report also highlighted other potential catalysts for an economic slowdown, such as a corrective depreciation of the dollar, persistently high oil prices or a slowdown in the IT sector.

Speaking at the launch of the Fás report yesterday, the Minister for Trade, Enterprise and Employment, Micheál Martin, said that the rate of employment growth in Ireland has been unparalleled in Europe.

He said there was "no room for complacency", citing threats such as a correction in the US economy.

A continued focus on R&D and upskilling the workforce will give Ireland a competitive advantage, the Minister said.

"It's a matter of looking intellingently ahead and positioning ourselves so that we can adapt to change," he said.