ISME has called on the Government to address the high costs facing manufacturing industry before more jobs are lost and companies closed.

In a commentary yesterday accompanying its quarterly business trends survey, the small firms' lobby group said the Government should use the upcoming budget to "save what is left of an indigenous manufacturing sector that is currently on the ropes".

According to the survey, only 5 per cent of manufacturing companies are more optimistic about business prospects, compared with 20 per cent in each of the previous three quarters.

This also compares with a percentage of 39 when all types of businesses are included. The service sector was the most optimistic, with 38 per cent of firms saying they were more confident, up 15 percentage points on the previous quarter.

ISME said it was particularly concerned at the "dramatic" reduction in confidence by manufacturers, and cited "exorbitant" increases in energy and labour costs as reasons for the decline.

"The cost environment and the subsequent erosion of competitiveness are the two biggest immediate threats to business.

"It is vitally important that the root causes behind the dramatic increases in production costs witnessed over the last number of years are brought under control or else we risk pricing ourselves out of the market."

While the majority of business sectors are generally optimistic about future prospects - 23 per cent expect to increase employment and 57 per cent plan to raise investment - the cost issue remains a concern for all, according to ISME.

With several aspects, such as oil and exchange rates, subject to external influences, ISME called on the Government to focus on wage inflation and transport costs.