More than 32,000 jobs have been lost in the manufacturing industry over the past three years and a further decline is likely in the first half of this year, according to IBEC.

Manufacturing employment is now back at levels reached in late 1996, it says, with falls in the modern sector as well as traditional industry.

Policymakers must not "stand idly by as manufacturing jobs relocate to other parts of the globe", according to IBEC's quarterly economic trends report. The skills and economic power of India, China and other Asian economies is increasing all the time, it says, and while Ireland's overall employment growth has been impressive, there was a worrying trend in the manufacturing sector.

"There is a certain complacency which rests on the thesis that manufacturing can be outsourced while the higher paid employment in R&D, innovation and marketing is retained here in Ireland," the trends survey says. But much of the higher income activity can also be performed in lower cost countries - "a trend that will gather pace if we do not meet the challenge".

Cost competitiveness is vital to achieve this, IBEC says, as part of a policy to put in place a "highly knowledge-based economic model that relies on commercialised research and development".

Looking at the overall economic position, IBEC says there are signs that the economy is responding to a more positive global environment.

However, it warns that this does not mean the economy is well placed to capitalise in full on an international upturn: "We are not."

Cost competitiveness has been lost in recent years and this has been compounded by the euro's rising value. There is also no guarantee that the global upturn will endure.