The West Midlands economy has gone into reverse - declining for first time in nearly five years.
January data for the manufacturing and service elements of the region's private sector fell for the first time in 58 months.
Commenting on the release of the latest Purchasing Managers Index business survey data, produced for the Royal Bank of Scotland by NTC Economics, RBS economist Julien Seetharamdoo said: "The new year saw activity levels decline for the first time in nearly five years, as uncertainty relating to global credit market turmoil continued to weigh on client demand.
"January data also pointed to a sharp drop in new orders and the steepest reduction of unfinished work in the series history, though the manufacturing sector appears to be holding up better than the service sector."
David Hersey, regional director of corporate banking for RBS in the West Midlands, added: "January's data reflects a tough current trading environment for the region's private sector. However after a long period of growth, businesses in the region are in the main, in good shape to search for growth in domestic and international markets."
Levels of incoming new business fell for a third successive month in January.
A sharp deterioration in new order volumes was underpinned by broad-based declines in new work across the West Midlands private sector economy.
A number of companies suggested that subdued market conditions, as well as uncertainty about the outlook for the UK economy, had encouraged clients to hold off non-essential expenditure.
Reduced workloads also contributed to a fall in employment levels.
Jobs in the region's private sector economy have now declined for four successive months.
Input cost inflation accelerated to its sharpest for eleven months in January - blamed on higher fuel, energy and food prices.
But output charges rose at their weakest rate since March 2005 as companies found difficulty passing on costs.
Nevertheless, the slump in business confidence has started to slow following an upturn in activity in some parts of the economy, according to a separate report.
In some sectors such as services, most firms expect business activity to increase, the study by Lloyds TSB found.
A survey of more than 200 companies showed that the balance of firms feeling more, rather then less, confident fell by one per cent between December and January, which Lloyds TSB said was a "welcome stabilisation."
Trevor Williams, chief economist at Lloyds TSB Corporate Markets, said: "It's encouraging that confidence in the service sector has risen, given that it is arguably the most exposed to the credit squeeze and most prone to a slowdown.
"It's also surprising that, overall, firms weren't even more pessimistic, given the depth of concern about falling house prices and the potential knock-on effect on consumer spending. This suggests there may be pockets of continuing economic growth, which means the assertions of an impending recession are way off mark."