"Concerted government and central bank actions to pump money into key economies like the U.S. and China are starting to show signs of bearing fruit. The U.S. and China are expected to be the main forces behind a global recovery in 2010," said Riccardo Barbieri, head of Banc of America Securities-Merrill Lynch international economics, global currencies and rates research.
According to Banc of America Securities-Merrill Lynch Research U.S. Economists Drew Matus and Lori Helwing, the U.S. economy, the world's largest, is expected to grow by 2.6 percent in 2010, compared with a previous estimate of 1.8 percent. Growth is expected to be supported by fiscal spending projects, modest consumer spending growth and rebound in inventory investment. A slight pick-up in the housing market and an improvement in exports should also support the projected recovery.
Real U.S. GDP in 2009 is expected to fall by 2.1 percent, compared to the previous forecast of a 2.4 percent contraction on slightly better spending specifically related to fiscal stimulus, a bottom in homebuilding and the inventory cycle.
China is expected to post growth of 9.6 percent in 2010, up from a previous forecast of 8.3 percent, underpinned by government stimulus packages and a recovery in exports. The forecast for 2009 Chinese growth remains at 8.0 percent amid signs that Chinese domestic demand is driving Asia's export recovery.
Asia leads improved outlook
Key June business and consumer surveys suggest the global recession has been easing in the second quarter of 2009, while large Asian economies have resumed growing.
China is not expected to be the sole source of robust growth in 2010. Banc of America Securities-Merrill Lynch forecasts show that prospects for other emerging economies, especially within Asia, have also improved significantly.
India's economy is expected to grow 7.3 percent in 2010, compared to an earlier forecast of 7.1 percent. The outlook for smaller Asian economies has improved markedly, with the 2010 forecast for South Korea rising to 4 percent from 3.0 percent and Taiwan from 3.5 percent to 4.5 percent.
The Japanese economy suffered its steepest-ever decline in Q1 2009, but a return to growth is predicted in Q2. Looking ahead to H2 2009 and beyond, the view is maintained that the economy will avoid a double-dip because of a belief that stock adjustment in the corporate sector will be past its nadir, and that the economic stimulus measures implemented at home and abroad will start to have a tangible impact.
Advanced economies are set to recover more slowly than emerging nations with Europe, in particular, expected to be a laggard.
Forecasts for the eurozone remain unchanged with a growth forecast of 1.2 percent for 2010 after a 4.4 percent contraction in 2009. The projections are still far more optimistic than forecasts from the European Central Bank (ECB).
BRIC nations looking brighter
Even with projected 2.1 percent growth in real GDP in 2010, the advanced economies are forecast to remain 1.4 percentage points below their 2008 peak. In stark contrast, the real GDP of emerging economies is expected to be 7.5 percentage points above the 2008 level, largely due to continued growth in India and China.
The ascendancy of emerging economies, like China and India, remains uninterrupted by the recession.
Growth forecasts for Brazil in 2010 remain unchanged at 4.5 percent but are revised upwards for Russia from 1.0 percent to 2.4 percent. The last six months saw Latin America follow other regions in mounting a frontloaded response to the global recession, with the second half of the game still to be played. Monetary policy will need to walk the thin line of remaining stimulant to avoid double-dip scenarios while avoiding signaling complacency, especially as the predicted recovery at the end of the year becomes more certain.
The more optimistic forecasts for global economic growth in 2010 are underpinned by the expectation that governments will continue to inject money into their economies in the form of fiscal stimulus packages going into next year.
Despite more upbeat GDP forecasts, the global inflation CPI forecast has risen only marginally, from 1.4 percent to 1.5 percent in 2009 as a result of higher oil prices. The forecast for 2010 remain unchanged at 2.7 percent.
