The Small Firms Association has warned that 2003 could be a record year for redundancies.

In its Summer Economic statement, the group notes the 8,136 jobs lost since January and cautions that job prospects are negative.

Its director, Mr Pat Delaney, said there were serious structural flaws in the Irish business model which must be addressed if employment in the sector was to be maintained.

"Failure to do so will result in very large increases in unemployment and taxation which will be required to meet welfare payments. "

This is the fourth successive year that small firms will create fewer jobs than in the previous year. They are expected to create 17,420 jobs in 2003 compared with 36,238 in the previous year.

"While the labour market is less rigid, those firms which are prepared to create jobs continue to be hindered by lack of skills and unrealistic wage expectations," said Mr Delaney.

The SFA has also urged the Government to adopt a more strident approach to inflation and has called for tough measures to be taken with regard to public spending.

"The current rate of inflation and the deteriorating competitive position must be tackled head on and the causes eradicated.

"Irish inflation remains more than twice the euro zone average and is being driven by domestic cost pressures. Increases in Irish input costs are now exerting serious pressure on businesses and job prospects," says the SFA.

It adds that price rises have been most sharp in restaurants and recreation sectors which have been exposed to significant wage, insurance, rental and commercial rate increases.