The small business lobby seized on the closure of Diamond Engineering in Limerick yesterday, warning that wage pressure and mounting insurance charges posed serious risks to the manufacturing sector.

Job losses could exceed 35,000 this year, with manufacturers especially vulnerable to escalating costs, said the Irish Small and Medium Enterprises Association (ISME).

The Small Firms' Association (SFA) said an average of 495 jobs were being lost each week - one every 20 minutes.

Of lay-offs, 40 per cent are in manufacturing, with metal production and engineering particularly badly hit, having shed 2,984 jobs since the start of the year, according to the SFA.

The decline of traditional industries was being compounded by the State's growing inability to win new investment because of reduced competitiveness, claimed SFA director Mr Pat Delaney.

"What is particularly concerning about the current high levels of redundancies is that our ability to create new jobs to compensate for these losses has been severely damaged by losses in competitiveness in recent years," he said.

"Many small companies have had to engage in drastic cost-cutting measures in an effort to survive the economic down-turn. Spiralling labour, insurance and energy costs have all played their part in putting increased pressure on business survival.

"With the increased number of redundancies and the lack of new jobs being created to replace them, it is no surprise that the unemployment rate has been increasing.

"Most worryingly, every extra 15,000 unemployed costs the Exchequer €100 million in social welfare payments."

ISME urged the Tánaiste, Ms Harney, to establish a review group to examine how indigenous firms could be helped withstand the economy's rapid slowdown.