Manufacturing in the south east will only see a muted recovery in 2010 before posting a stronger performance in 2011 on the back of export led growth, according to a major economic forecast published by EEF, the manufacturers’ organisation and accountants and business advisers BDO.

The Economic Prospects 2010 report forecasts manufacturing will grow by 1.2% this year before picking up to 3.4% in 2011, but it also forecasts the performance of individual sectors is set to sharply diverge, with some enjoying strong growth whilst others with longer lead times are only just about to see a downturn.

For the economy as a whole, the best prospects for growth lie in the UK’s export potential, supported by a weak exchange rate, as the world economy returns to growth, and manufacturing will have a big role to play. This will lead to some rebalancing of economic growth in the short term, as exports grow this year and the sector outpaces the rest of the economy. However, as consumers remain wary and continue to pay down debt and rebuild savings the UK economy will grow by only 0.9% in 2010.

The report also highlights that risks to growth remain, not least from continued credit constraints and the impact of the electoral cycle on economic performance. However, further challenges will not be unique to the UK economy.

David Seall, EEF south east region director, said: “The outlook for the UK economy and our regional manufacturers is far from certain, with little anticipated momentum behind a recovery until the latter part of the year. The prospects for different sectors are also highly variable, and while some can safely say the worst is behind them, others are beginning to feel the chill.”

Added Robin Lloyd, director and head of manufacturing at BDO in Southampton: “Manufacturers will need to continue to implement cost-cutting measures, including staff reductions, to maintain profits in what will continue to be a very challenging market. The lack of access to credit will continue to cause major headaches for many, in particular as the growth phase begins to place increasing demands on working capital. I have concerns that the early period of 2010 could prove very difficult.

“On a more positive note, we feel that more significant growth in activity levels should begin in earnest towards the end of 2010 and gain momentum into 2011.”