After turning around briskly in the second half of 2009 and into the early part of this year, US economic growth slowed in the second and third quarters of 2010. Fiscal support continues to be substantial, but the effect of the stimulus on growth is diminishing and is assumed to turn negative in future quarters. The pace of the recovery is projected to remain moderate through 2011-2012 as households continue to rebuild net worth and the unemployment rate declines slowly.

Japan has responded to slowing growth with two fiscal packages in late 2010, which will support activity in 2011, with annual growth projected to reach 1¾ per cent. As the impact of the fiscal stimulus fades, stronger private domestic demand, underpinned by improving labour market conditions and high corporate profitability, will support the expansion through 2012. Nevertheless, deflation is projected to continue, with unemployment remaining above its pre-crisis level.

A gradual recovery is underway, driven by strong exports and a rise in consumption and investment. Confidence has rebounded and financial conditions have improved. However, the pace of recovery is likely to be muted, due to on-going private sector balance sheet adjustments, necessary fiscal consolidation and prolonged adjustment to large imbalances in some peripheral countries. Unemployment has stabilised at a high level. Considerable slack will keep inflation low.

The economy is recovering strongly on the back of the improvement in world trade. Private consumption, investment and government spending on infrastructure have also been strong. The labour market continues to remain surprisingly resilient and unemployment has now fallen to its lowest level since reunification. Although annual growth is expected to slow somewhat over the projection horizon, the pre-crisis real GDP level will be reached in the course of 2011.

Following a mild slowing of activity in recent months, real GDP growth is projected to pick up slowly towards an annualised pace of 2% by 2012, led by business investment and exports. The unemployment rate has peaked but is set to decline only slightly, while price pressures will remain subdued, with underlying inflation at about 1% per year.

After one of the deepest recessions in the OECD area, Italy’s economy has begun a moderate recovery which will strengthen somewhat over the next two years. Investment and exports lead the upturn in demand. Unemployment may be near its peak, but as use of the Cassa Integrazione wage support schemes unwinds it may not fall very fast. Household income growth will remain sluggish and depend on a recovery in self-employment income, which dropped severely during the downturn. Consumer price inflation has picked up during the year but will remain subdued through 2012.

The economy is recovering from the recession, supported by both growing domestic demand and rising exports. The substantial but necessary fiscal tightening and weak real income growth create headwinds and growth is projected to remain subdued in 2011. The recovery will gain a bit more momentum in 2012 when exports are expected to increase further and business investment to grow more robustly. Unemployment is set to fall gradually. Inflation will remain above the 2% target through 2011 due to an initial boost from the rise in VAT, but is projected to fall below the target in 2012 when the effects of the increase in the VAT rate wane. Underlying inflation, excluding effects from changes in VAT, remains low due to significant economic slack.

The economic recovery has slowed sharply as a result of waning expansion of external demand and a retrenchment in household spending growth. Activity is nevertheless projected to progress at a moderate pace through 2011-12 as employment prospects and external demand gradually pick up again. Business investment is expected to remain robust, bolstered by firms’ healthy profitability and financial positions and low funding costs. Substantial economic slack should gradually diminish but keep inflation pressures subdued.

The Australian economy, fuelled by the mining boom, should grow robustly in 2011 and 2012 at a rate of between 3½ and 4%. Strong growth, driven by terms of trade gains and dynamic investment, will reduce unemployment.

The export-led recovery strengthened in 2010. However, the projected pick-up in private sector consumption and investment demand will be tempered by fiscal consolidation, leaving growth at around 2% in both 2011 and 2012. The unemployment rate will fall slightly, while core inflation picks up somewhat.

Following the growth spurt in the first half of 2010, the pace of economic expansion appears to be moderating but is likely to pick up again into 2012. Over the projection horizon, the recovery will be driven by world trade as fiscal policy becomes restrictive. High unemployment, if it persists, may translate into higher levels of structural unemployment.

The Chilean economy has embarked on a strong recovery. Supported by high copper prices and strong domestic demand after the February earthquakes, the pace of growth is projected to remain high in 2011 and 2012. Inflation is likely to temporarily exceed the central bank’s inflation target of 3% in the second half of 2010 and early 2011, but then fall back gradually as policy tightening takes effect.

Exports continue to drive the recovery in real GDP, which is set to grow by 2.4% in 2010 and 2.8% in 2011, with domestic demand more subdued because of the weak labour market and fiscal consolidation. By 2012 the economy is likely to be growing by 3.2%. Temporary inflationary pressures are coming from energy prices and housing costs, but the inflation target of 2% should be achieved.

The recovery is expected to gain strength gradually as world trade expands, and to become broadbased as private domestic demand improves. With still substantial slack in the economy, inflation is set to remain subdued.

The economy has rebounded strongly on the back of sharply recovering exports, and unemployment has started to recede. Activity will continue to benefit from firm world trade growth, while renewed confidence and lower unemployment will support domestic demand, leading to robust investment and output growth in the years ahead. Remaining slack will nevertheless hold inflation down.

Economic activity is contracting, in large part reflecting the sizeable fiscal consolidation underway. The economy is expected to return to positive growth by 2012 as the impact of structural reforms takes hold and external demand strengthens. Headline inflation has edged up, largely due to tax hikes, but should trend downwards given economic slack and rising unemployment.

Economic growth resumed in 2010 and was mainly fuelled by robust external demand, while private consumption and investment continued to fall. Growth is projected to gain momentum as domestic demand gradually recovers. Headline inflation is expected to stabilise around the mediumterm target of 3%.

After the deep recession of the past two years, Iceland is making progress towards unwinding its economic imbalances and laying the foundations for durable economic growth. The recovery is projected to get underway in the second half of 2011, led by planned privately-driven investment in large energy projects and strengthening private consumption expenditure. Inflation is projected to fall below the 2½ per cent target of monetary policy.

The economy is undergoing massive adjustment. Past imbalances are unwinding in banking, the housing market, the government budget and the labour market, leaving a large impact on public debt and unemployment. After two years of deep recession, activity seems to have reached a bottom in the first half of 2010. A mild recovery is projected to be driven by exports, while domestic demand is likely to remain sluggish. The government intends to continue policies to bring the fiscal accounts closer to balance and to restore competitiveness. If sustained, this should help bolster activity and support employment growth in the medium run.

Recovery from the relatively mild downturn has already tightened the labour market and growth may be running somewhat above potential by the end of 2012. Annual inflation is currently well within the 1-3% target band but is likely to trend towards the upper limit.

Although Korea’s strong recovery from the 2008 global recession slowed in the latter half of 2010, double-digit export growth and buoyant domestic demand are projected to boost growth to a 5% rate by late 2011. The decline in the unemployment rate to less than 3½ per cent in mid-2010 and high capacity utilisation are putting upward pressure on wages and inflation.

A recovery is underway, led by private domestic demand. Exports of financial services should start to contribute more strongly to growth as financial market conditions improve. Activity is projected to grow faster than the euro area average, although uncertainties remain regarding the future of the dominant financial sector in the medium term.

The Mexican economy has embarked on a vigorous recovery, which started in 2009 on the back of strong export growth. Activity is projected to grow by 5% in 2010, before slowing somewhat to a bit below 3½ per cent in 2011, as export dynamics normalise. The reliance on exports to the US market, where the recovery has weakened, is a source of risk.

As the temporary growth spurt in the first half of 2010 fades, the economy is becoming more reliant on the recovery in world trade. Private consumption is likely to be subdued by fiscal tightening, a fragile housing market and pension funds’ recovery measures. Low capacity utilisation will prevent more than a gradual pick-up in business investment.

Growth has slowed thus far in 2010, mainly as high indebtedness and economic uncertainty weigh on households and firms. The major earthquake last September has exacerbated near-term weakness, though providing a boost to activity as reconstruction gathers pace. The recovery will become selfsustaining as businesses hire and invest to meet reviving export and consumer demand.

The economic recovery in mainland Norway, following a shallower recession than elsewhere, is projected to continue and gradually strengthen. For the first time in several years, public expenditure will not provide a strong boost to activity; private investment and consumption will be the main sources of demand growth. As from 2011, mainland GDP will be growing sufficiently rapidly to reduce excess capacity and by 2012 demand pressure will start to push inflation upwards again.

A strong recovery is underway thanks to booming exports, a recovery in private and public consumption and stock rebuilding. Real GDP growth is projected to be sustained by infrastructure investments, partly financed by EU funds, and driven to some extent by the 2012 football championship.

The economy is expected to be very weak in the rest of 2010 and into 2011, due to strong fiscal consolidation and tight credit conditions. Growth is expected to resume in 2012 as external demand and wage moderation support exports and investment. Unemployment is set to rise further.

The economy is recovering at a strong pace driven by net exports, but domestic demand remains more subdued. In 2011, fiscal consolidation and somewhat slower demand from Slovakia’s main trading partners are expected to slightly moderate growth to around 3.5%. Real GDP is envisaged to accelerate again in 2012 with a gradual improvement in the labour market.

The recovery has mainly been driven by rising exports so far. Growth should rebalance gradually towards private domestic demand through 2011 and 2012. The unemployment rate has yet to stabilise as government short-time work measures are being phased out and activity remains subdued. Considerable economic slack should keep inflation in check.

Output is expected to remain flat in the second half of 2010 and to grow by 1% in 2011 and by 1¾ per cent in 2012. The unemployment rate is projected to decline to 16½ per cent by the end of 2012 while consumer price inflation may fall to below 0.5% once the effect of increased VAT rates drops out.

The economy has recovered strongly from the recent recession. Solid, though more moderate, growth is expected to continue as external demand gains momentum. Unemployment is projected to decline, but rather slowly. Core inflation is expected to remain subdued, amid low wage pressures and still ample spare capacity.

Economic activity has gained significant momentum on the back of the global recovery, and then a strong pick-up in domestic demand growth from the middle of 2010. As the output gap closes, economic growth gradually slows to potential through the projection period. Unemployment will continue to decline slowly in 2011 and 2012 while inflation is projected to rise slightly above 1%.

The recovery which started in the second quarter of 2009 has remained strong during 2010. GDP growth is projected to exceed 8% this year, and to remain above 5% in 2011 and 2012 as the post-crisis rebound of exports, consumption and investment tapers off.