The West Midlands is set for a return to GDP growth of 0.9 per cent in 2010, according to PwC.
The firm also believes additional tax rises or spending cuts of around £20 billion over and above current plans will be needed by 2013/14 to close the fiscal gap, according to its latest UK Economic Outlook report.
The report forecasts the UK economy will show modest average GDP growth of around one per cent in 2010, picking up to around 2.5 per cent in 2011.
Mark Smith, regional chairman of PwC in the Midlands, said: “The signs for economic recovery in the West Midlands are promising but the extent of the good news should not be exaggerated and much depends on whether the projected upturn can be sustained.
“Our projections take a more cautious view of the economy’s medium-term growth potential than the Treasury.
“We assume the same five per cent of GDP permanent loss of output due to the recession as the Treasury, but assume that the underlying trend growth rate from 2008/9 onwards is 2.25 per cent per annum, rather than the Treasury’s 2.75 per cent.
“We see public sector net borrowing remaining at around five per cent of GDP in 2014/15, as compared to the latest Treasury forecast of a 4.4 per cent budget deficit in that year.
“Public borrowing in the medium term could therefore exceed the levels projected by the Treasury meaning that, with public debt heading to just above 80 per cent of GDP in 2014/15.”
The report states that the fiscal gap could be closed through many possible combinations of additional tax rises and spending cuts starting from 2011/12 and building up to around £20 billion per annum (at 2009/10 GDP values) by 2013/14.
Mr Smith added: “Depending on the mix of tax rises and spending cuts adopted, the scale of the cumulative spending cuts required in the three years to 2013/14 could be anywhere between nine and 27 per cent.
“The details of this package will be for the next government to decide but whatever the outcome, public spending is likely to be squeezed hard from 2011/12 onwards after a decade of relatively strong growth.”