Midland manufacturers have warned that a break-up of the euro or worsening credit terms for firms and households could knock the economy for six.
Lobby group EEF Midlands said there was no let-up in the need to stimulate growth amid fears of continued uncertainty beyond 2012.
The manufacturers’ organisation’s mid-year economic forecast update predicted below-par 0.2 per cent growth for the economy this year.
But the group further revised down its outlook for manufacturing in 2012 as the uncertainty in the Eurozone, the UK’s main export market, has continued to bite.
According to EEF’s central forecast some stability should return in the second half of this year leading to a resumption of modest quarterly growth in GDP, whilst manufacturing activity should step up a gear in early 2013.
The improving prospects for 2013 will continue to be driven by exports which are forecast to increase by 4.1 per cent next year, mainly to markets outside the EU.
EEF Midlands Region Director, Richard Halstead, said: “The estimate for second quarter growth is again unlikely to flatter the UK’s economic performance. But the bigger question is where we go from here.
“Our forecast scenarios show the importance of bringing greater confidence and certainty to the private sector.
“The rebalancing process would be kick-started if firms were to push ahead with investment plans.
“But our forecast also shows the risks from another big shock such as a euro break-up or significant deterioration in credit conditions for firms and households.
“Either event would knock the economy for six once again and further delay the onset of any green shoots of recovery.”
If a Greek default spreads to a break-up of the eurozone EEF estimates that the knock-on impact on UK manufacturing would be a drop in output of 1.3 per cent in 2012 and as much as 4.6 per cent in 2013.