Phew, aren’t we all glad to see that as the headline in many articles!   This time last year we were all heading into 2009 with trepidation, but we have rallied through the storm and here we are looking towards a bright 2010.

Australia has proved herself stable, being one of few advanced countries with a positive GDP growth.

Shane Oliver reports the following:

Outlook for 2010

In direct contrast to the doom and gloom of a year ago, the outlook for 2010 is reasonably bright. Sure, the aftershocks from the global financial crisis – such as high unemployment, periodic debt blow-ups (Dubai, Greece, etc) and constrained bank lending – will linger. But as 2010 progresses, the global recovery is likely to become increasingly self-sustaining. In this regard, the key themes of relevance for investors for 2010 are likely to be:

1. A self-sustaining economic recovery. Leading economic indicators point to continued growth over the year ahead. But most importantly, signs that labour markets are starting to turn the corner – notably in the US – suggest the recovery is on its way to becoming self-sustaining. In other words, fiscal and monetary policy has primed the pump and the private sector will now take over. 2010 is likely to see global growth of around 4% (up from 0.8% in 2009, which primarily reflects the late 2008/early 2009 slump).
2. 2. Stronger growth in the emerging world. Thanks to stronger domestic demand and less in the way of structural constraints such as debt and demographics, growth in the emerging world is likely to be 7% compared to around 2.5% in advanced countries in 2010. China is likely to grow by 10%, India by 8% and Brazil by 6%.
3. 3. Benign inflation. Inflation lags economic activity because it reflects capacity utilisation, which is below normal well into an economic recovery. This time is no different except that excess capacity is greater than normal, with the result that underlying inflation is likely to continue to fall in the year ahead.
4. 4. A gradual move to wind back the stimulus. Along with the economic recovery there will eventually be pressure to wind back budget deficits and raise interest rates. Talk of higher interest rates and uncertainty about how aggressive the wind back will be, will no doubt fuel occasional corrections in asset markets over the year ahead, particularly in those markets that have benefitted the most from low US interest rates. Namely, emerging markets, commodities and commodity currencies – much as occurred in 2004 when the Federal Reserve (the Fed) last moved to tighten. However, tightening will be a very slow process in advanced countries, given memories of premature tightening in the US in the 1930s, still very high unemployment, and falling underlying inflation. Global central banks will first move to unwind the liquidity stimulus before starting to raise interest rates during the second half of 2010. Interest rates will still be very low by the end of 2010 – maybe around 1.5% in the US. China is likely to move a bit more aggressively to tighten, but it is not as dependent on stimulus measures.
5. 5. Earnings recovery. As the economic recovery becomes entrenched, earnings growth will return and take over as the key driver of share market gains. Profit growth is likely to be in the order of 20% in the US and Australia, and 30% or more in emerging countries.
6. 6. Australian economic growth to rebound but underlying inflation to slow. The rebound in business and consumer confidence, a housing construction recovery, numerous mining projects, and increased public infrastructure spending are expected to underpin GDP growth of around 4% through 2010.

For the whole article by Shane http://www.smartcompany.com.au/economy/20091214-2009-has-been-a-year-of-recovery.html