The Small Firms Association says a focused Budget, continuity in interest rates and intensified downward pressure on the inflationary aspects of the domestic economy are essential for Irish businesses to remain competitive.

In its winter economic statement, SFA director, Pat Delaney, warns that with inflationary pressures mounting because of oil prices many export businesses are now under severe pressure. While Irish production costs remain higher than in competing economies. "Irish business is now finding itself in direct competition with firms from newly industrialising countries with much lower costs and increasing technical capability," he says.

A range of non-pay costs, including electricity, gas, petrol, diesel, waste, water, commercial rates and rental costs are now undermining Irish business. The SFA states that while economic growth remains strong many companies in exposed sectors are reporting business prospects as "flat".

Pay increases of 5.4 per cent continue to rise faster than in other EU countries but are not being offset by rising productivity in the indigenous sector which is stalled at 2.6 per cent.

"Taken in the round, the changing economic environment brings Ireland's competitive position into sharper focus and makes a compelling case for spending growth to be limited to revenue growth, wage moderation, major changes in the costs of providing local authority services such as water, waste and environmental and delivery of the long overdue benefits of the liberalised energy market," it says.