Highlights

  • Emerging from the worst recession in more than 60 years, the global economy will expand strongly in 2010. International trade is on the mend and the major economies are recovering in sync. Emerging Asia is shaping up as the main driver of growth in the coming year.
  • A labour market turnaround and one of the sharpest rises in existing-home sales on record are about to move the U.S. economy into self-sustaining growth. The outlook for the coming year is broadly positive. We expect the U.S. economy to expand 3.4% in 2010.
  • External demand – mainly from the U.S. – finally joined domestic demand in giving Canadian GDP a strong boost in the fourth quarter. After robust Q4 growth of 4% annualized, we expect the Canadian economy to grow almost 3% in real terms next year.

World: Strong Asia-led growth in 2010

Emerging from the worst recession in more than 60 years, the global economy will expand strongly in 2010. International trade is on the mend and the major economies are recovering in sync. Emerging Asia is shaping up as the main driver of growth in the coming year.

Leading indicators of the BRIC and OECD countries are sending loud and clear signals of recovery. The International Energy Agency has just revised up its outlook for world oil demand to more than 86 million barrels a day, very close to the pre-recession peak.

International trade has been revived from its collapse of late 2008 by factors including restored availability of credit targeted explicitly to the financing of trade. The CPB Netherlands Bureau of Economic Policy Analysis reports that recovery is in progress in all regions of the world in addition to the improvement of trade flows in recent months. The growth of trade is due in part to an increase in demand from developed countries, whose imports in Q3 rose more than 20% from the previous three months after five straight quarters of contraction. The recovery of global trade will be a key driver of the world economy in 2010.

Though the developed economies will contribute significantly, global growth in the coming year will be led by emerging Asia, especially China and India. These two countries together now account for 16.2% of world GDP (China 11.4%, India 4.8%)1 but will contribute 1.5 points of the 4% global growth we are forecasting for 2010. Though the GDP of the advanced economies is three times that of Chindia, they will contribute less than a third of that growth.

The exchange-rate policy that China has had in place since mid-2008 opens its economy to large inflows of liquidity with a concomitant risk of speculative bubble formation. The People’s Bank of China has begun to focus on inflation risk as a result of early signs of speculation, including sharp run-ups of stock market and real estate prices.

The growth of Chinese credit and money supply is likely to cool in 2010. Bank lending is up 30% from a year ago and the money supply is increasing at a rate that will eventually be inflationary. We expect Beijing to gradually withdraw stimulus over the coming year.

In summary, 2010 is shaping up as a vintage year for global growth.