The US economy expanded by an annualised 5.7% in Q4 2009. This was the strongest growth since Q3 2003, when GDP increased by an annualised 6.9%. Over 2009 as a whole, GDP declined 2.4%. In terms of duration and severity, this has been the worst US recession since the beginning of the 1950s.

Almost 60% of the rebound in growth in Q4 may be attributed to slower corporate destocking. Domestic demand contributed 1.8 point to the growth figure during the period, compared with 2.4 points in Q3. Private investment increased by an annualised 3.5%, but that was not enough to offset a slight deceleration in household consumption (up an annualised 2%, after 2.8% in Q3) and a decline in government spending (- 0.2%, after 2.7% in Q3).

Simultaneous increases in exports and imports highlight positive trends in domestic and international demand. A faster expansion in exports than in imports ensured that the contribution of foreign trade to growth was 0.5 point in Q4.

The Q4 growth rate is not about to be repeated, as exceptional support factors such as scrappage schemes, tax breaks and slower corporate destocking will fade.

That said, a carryover effect worth 1.3% to 2010 growth at the end of Q4 means that gains in GDP limited to 0.6% each quarter (an annualised 2.4%) – which would be modest by historical standards, given where we are in the growth cycle – would result in 2.8% over this year as a whole. The economists' consensus forecast is 2.9%, which looks rather conservative. There are risks to both the upside and the downside, and visibility on 2011 remains poor. The consensus estimate of 3.1% growth next year is much the same as that for 2010.

Faster growth could stem from international trade. With the exception of Canada, activity in America’s main trading partners will probably be more robust than its own. If this does turn out to be the case, foreign demand will rise more swiftly than domestic demand and contribute positively to US growth. This is an unusual situation that last occurred after the 1900-91 recession. The contribution of foreign trade to American growth in the year after recession averages -0.7 point.

A sluggish recovery on the labour market is a risk to a potential pick-up in household consumption, but analysts do not appear to be overoptimistic on the subject. Following two negative years (-0.2% in 2008 and -0.6% in 2009), private spending is expected to rise 1.9% in 2010 and 2.5% in 2011, and these figures are modest by historical standards. Looking at the past 60 years, annual consumption growth in the two years following the end of recession averages 4.2%.

The upturn in consumption will become more autonomous, as it will no longer depend on fiscal stimulus.

With no inflation fears in sight, monetary policy will continue to favour growth in the short and medium term. No rate hikes are expected in the coming three or nine months, although the fed funds target is forecast at a still very low 0.5% in a year’s time.

The UK is officially out of recession, as according to initial estimates GDP inched 0.1% higher in Q4 2009. This result is disappointing but could be revised up as a result of statistics for December.

GDP slumped almost 4.7% in 2009 and is set to rise by an uninspiring 1.5% this year. Even so, the ongoing adjustment will enable growth to accelerate to 2.2% in 2011, compared with only 1.6% in the euro zone. The UK economy is benefiting from less stringent fiscal and monetary constraints than the euro zone, which will permit faster adjustment. Given a looming general election, the fiscal consolidation programme is not set in stone, and uncertainty over the vote could increase pressure on the bond markets. The Bank of England would intervene to keep yields down, however.

At its most recent Monetary Policy Committee meeting, the BoE said it would not rule out increasing its purchases of government bonds if this proved necessary. The risks to growth justify an extremely flexible monetary policy. The recent pickup in inflation from 1.9% year-on-year in November to 2.9% in December may be attributed to the pound’s depreciation and base effects related to the cut in VAT the year before and changes in commodity prices. These factors are temporary, and inflation is forecast to ease to an average 2.4% in 2010 and 1.7% in 2011. It would be premature for the BoE to seek a crisis exit strategy at this point. Its key interest rate will be unchanged for most of this year but could be 50bp higher in a year’s time if growth prospects are confirmed.

Euro zone GDP is set to increase 1.3% in 2010 and 1.6% in 2011, and even these moderate growth rates will probably suffer occasional hiccups. Slowing services activity has recently brought purchasing managers indices for the euro zone to a halt, while on a three-month moving average industrial production has proved disappointing in France, Germany and Italy. In Germany, factory orders increased by just 0.2% per month on average in Q4, compared with 1.9% in Q3, and further deceleration this year is to be expected as government support for activity fades. Companies are still reluctant to borrow, invest and hire. Euro zone economies remain heavily dependent on government aid, and budget deficits will widen further in 2010. The problem is that the markets and rating agencies have reached the limits of their tolerance, especially as the ECB will not continue to accept BBB collateral for its repo operations beyond this year. That automatically puts Greece, Portugal and Spain under pressure. All euro zone countries will have to adopt credible fiscal consolidation programmes spread over several years, even if this makes their governments increasingly unpopular.

The ECB has opted to wait until its March meeting before giving details of its exit strategy. A rate hike is expected at end-2010 (50bp, to 1.50%), but the crisis of confidence in government debt could derail this forecast.

Forecasts of Japanese GDP growth in 2010 have been revised down again this month, to 1.3%. Consumer confidence has dipped – the Cabinet Office index was 37.8 in December, after 39.6 in November – and morale among small businesses has stagnated since October (the Shoko Chukin index). Industrial production has proved somewhat disappointing, although it did increase by an average 2.2% per month in November and December. Machinery orders, a leading indicator of business investment, declined by an average 7.9% per month in October and November, and both consumption and investment may remain feeble this year unless world growth nudges the Japanese economy into a virtuous spiral. That would need a continuing acceleration in exports to the rest of Asia (45% of the total) that offsets softer demand from other developed countries. The rebound is taking its time and the total value of Japanese exports is still 32% below its pre-crisis level. But if present trends persist that level could be reached by year-end.

This scenario could suffer as a result of the yen’s appreciation, although this move has been less vigorous following the recent appointment of Naoto Kan as finance minister. Mr Kan is less keen on a stronger currency than his predecessor was. Standard & Poor’s downward revision to its outlook for Japan’s sovereign rating, from stable to negative, is not helping the yen either. In the approach to Senate elections on 10 July, the government has to strike a delicate balance between budgetary control (the deficit is estimated at 8% of GDP in 2010) and bolstering activity. The budget for the fiscal year starting in March 2010 provides for a slight reduction in the deficit to JPY 44 trillion, compared with JPY 45.5 trillion in the year just ending. But the government could well introduce a supplementary budget in May or June or tap the JPY 1 trillion reserve fund established to manage the consequences of the crisis.

The Japanese economy cannot yet do without support in the form of government spending. Weaker consumption and private investment are fuelling deflation (-1.7% in December) and the government has assigned the task of dealing with it to the Bank of Japan. Unfortunately, the BoJ has already done a great deal on monetary easing – its budget represents 25% of GDP, compared with around 20% for the Fed and 15% for the ECB – although additional steps will probably be taken in the form of purchases of government bonds or shares in major firms, or of liquidity injections for banks, depending on the pressures on these various markets.

Emerging countries will report high growth rates out to 2011, and largely superior to those in developed countries. In contrast with developed countries, where the risks lie with slower activity and postcrisis exit strategies for monetary and fiscal policy, emerging countries face risks related to rapid growth and the emergence of inflation risk. Emerging countries also face difficulties in monetary policy management in a context of administered or fixed exchange rates. The issue is rendered all the more complex by the fact that monetary policy normalisation is out of step between emerging and developed countries. The former will have to tighten policy faster than the latter, and this is liable to put their currencies under upward pressure.

Asia will continue to top the growth table, with all of the countries in the region contributing to increases in GDP amounting to 7.8% in 2010 and 7.4% in 2011. Domestic demand and exports will drive these gains. China and India will remain the most vigorous economies in the world, with 2010 growth rates of 9.7% and 7.8%, respectively. Because of mounting inflationary pressure, these countries also face the most pressing questions on less accommodating monetary policies and have already adopted measures to restrict liquidity and credit growth.

Latin American growth will recover to almost 4% (3.8% in 2010 and 2011, according to consensus forecasters). Growth differentials between regional economies will diminish next year, with the countries recovering more slowly now posting growth rates closer to those of their most vigorous neighbours in 2011. Brazil will report remarkably dynamic growth this year (5.4%, then 4.5% in 2011) as a result of accelerating private investment and very robust household consumption. Scarcely less dynamic will be Chile (4.8% in 2010, 4.6% in 2011) and Peru (4.9%, 4.8%). Monetary tightening will therefore be particularly marked in these countries, with key central bank rates projected to rise 250bp in Brazil and Chile and by 200bp in Peru over the coming 12 months. Mexico is expected to rebound smartly, with GDP rising 3.4% in 2010 and 3.5% in 2011 after a 6.9% drop in 2009. Manufacturing output, exports and business investment are set to expand substantially. Export demand will remain a major support factor for the Mexican economy. The 2009 downswing was so severe that output gaps will take some time to close, so much so that analysts rule out the return of inflationary pressure. The year-on-year inflation rate will climb to 5% in December 2010 because of tax hikes and rising energy prices, but most forecasters believe the central bank will not tighten before yearend (and by 100bp in the coming 12 months).

Sustained by stockbuilding and extraordinary monetary and fiscal stimulus, the recovery is spreading to Eastern Europe. National performances will vary greatly, however, with prolonged recession in the Baltic States, stagnating GDP in Hungary, growth rates of between 1.5% and 2.5% in the Czech Republic and Poland and outperformance from Russia and Turkey, with growth of 4% in 2010 and 4.5% in 2011. Regional GDP contracted almost 6% in 2009 but is expected to expand 3% this year and 4% in 2011. The region’s lag on the recovery cycle implies later and smaller rate hikes than in other parts of the world. Hungary and Russia will actually ease further this year. The Hungarian authorities may cut 50bp in the near future (although will make no further adjustments to a 12-month horizon), while Russia is expected to ease 100bp over the coming year, of which 50bp within three months.