Supported by accommodative monetary policy and financial conditions the economy continues to recover gradually from the recession that ended a year and a half ago. Nevertheless, the adverse effects of the crisis are still being felt, particularly in the form of still-high unemployment. Output growth should gain speed and the unemployment rate should continue to decline through 2012 though the pace of expansion will be limited by household deleveraging and initial steps at fiscal consolidation.

The 11 March 2011 Great East Japan Earthquake triggered the country’s worst disaster of the postwar era. The immediate impact has been to reduce output, although this is likely to be reversed by a strong recovery in the second half of 2011 led by reconstruction efforts. However, deflationary pressures are likely to continue through 2012, with unemployment remaining above its pre-2008 crisis level.

The recovery in domestic demand is gaining momentum and exports continue to support growth. Confidence is strengthening and financial conditions have improved. The pace of recovery is likely to be dampened by required fiscal consolidation, on-going private sector balance sheet adjustment and higher energy prices. Headline inflation has risen sharply due to energy price increases and higher indirect taxes, but underlying price pressures remain weak, reflecting high unemployment and significant spare capacity. The sovereign debt crisis and persisting imbalances within the euro area are a major risk to the outlook.

The export-led recovery is continuing, with domestic demand, notably business investment and private consumption, increasingly contributing to growth. Employment continues to rise and, coupled with wage increases, should support private consumption growth over the next couple of years. Growth is projected to slow somewhat in 2012 as the output gap closes during that year.

A modest recovery is underway, but the recession will leave lasting traces. Real GDP is projected to grow by over 2% in both 2011 and 2012, led by business investment and exports. The unemployment rate is set to decline slightly towards 9% by the end of 2012. Substantial spare capacity is expected to limit any second-round effects of rising import prices, and underlying and headline inflation should converge to about 1½ per cent in 2012.

Italy’s slow recovery is projected to continue with growth strengthening somewhat to around 1½ per cent in 2012. Buoyant world demand will stimulate the export sector and investment growth should re-accelerate too. Unemployment will fall only slowly, partly because the initial improvement in labour demand will be absorbed by reduced use of short-time working. After picking up quite sharply recently, headline inflation is expected to fall back as the impact of increases in energy and food prices diminishes.

The recovery paused in end-2010 and growth is projected to remain weak in 2011, despite rising exports and business investment, but to pick up in 2012. Above-target inflation, driven by tax increases and commodity prices, and needed fiscal consolidation, will hold back private consumption and public spending during 2011-12. Inflation will remain above the 2% target through 2011 and most of 2012, but is set to fall when the effects of the tax increases and rising import prices wane. As inflation falls, private consumption should start to recover. Unemployment is likely to increase in the short term, reflecting the slow recovery and rising labour force participation.

Economic activity rebounded vigorously through the winter, supported by strengthening external demand and a healthy rate of business investment. Growth is projected to moderate somewhat over the near term, as international supply chains suffer from the effects of the Japanese disaster, highly indebted households pare back spending and housing markets soften, but then gather speed again as unemployment recedes and the global recovery gains traction. Rising corporate profits and improving credit conditions should buttress robust business capital spending as a key driver of growth.

The Australian economy is set to rebound after the disruptions caused by major natural disasters in early 2011. Growth, driven by historically high terms-of-trade, should accelerate from 3% in 2011 to 4½ per cent in 2012. Unemployment is projected to fall, although the remaining slack in the economy will mute the risk of inflation pressures.

Investment growth picked up strongly in the second half of 2010 and will continue to support the export-led recovery. The labour market continues to improve but large increases in inflation will weigh on consumption. After a strong first quarter of 2011, growth is projected to slow down to its trend rate.

The recovery will become more balanced as private consumption and investment strengthen, although growth will be moderated by a more restrictive fiscal policy stance and the gradual withdrawal of monetary policy support. Automatic wage indexation may prolong the period of relatively high consumer price inflation as high global commodity prices are passed through to wage costs.

The Chilean economy is growing strongly, driven by dynamic domestic demand with support from high copper prices. GDP growth is expected to reach 6½ per cent in 2011 and gradually slow towards 5% in 2012, as monetary and fiscal policies tighten.

Despite ongoing fiscal tightening real GDP growth is expected to reach 2.4% this year, driven primarily by strong foreign demand. Growth will broaden and rise further to 3.5% in 2012, as consumption picks up. Headline inflation will spike temporarily due to scheduled indirect tax increases in 2012, but core inflation will remain low given the remaining output gap.

The recovery is expected to gain strength gradually as world trade expands, and to become more broad-based as private domestic demand improves. Given the remaining economic slack, core inflation is projected to be subdued.

The strong export-driven recovery is projected to continue in 2011, reflecting the positive external outlook and improved competitiveness achieved through flexible wage adjustment and restructuring measures. Private consumption will gain momentum in 2012, as unemployment continues to fall, the real wage bill increases, and more bad debt cases are resolved. Despite high headline inflation due to energy and commodity price shocks, no second round effects are projected and core inflation is expected to remain below historical averages.

The recovery is gathering further strength, boosted by strong exports, private consumption and residential investment. Although external demand in traditional markets is likely to remain robust, growth is projected to slow somewhat as private consumption and residential investment soften as higher commodity prices, taxes and interest rates bite into real incomes. Unemployment will continue to decline as employment grows and the labour force shrinks with ageing.

The economy is suffering a serious recession in the context of the sizeable, but vital, fiscal retrenchment. A return to sustained positive growth is projected for 2012 as external demand strengthens, competitiveness improves and the far-reaching structural reforms implemented in response to the fiscal crisis start to take hold. Substantial economic slack and rising unemployment will keep inflation pressures subdued. The outlook is subject to important, mostly downside risks.

The recovery in economic activity continues, driven mainly by inventory accumulation and external demand. Growth is projected to pick up, supported by vigorous exports and gradually improving domestic demand. Headline inflation is expected to moderate towards the medium-term target of the central bank once the effects of higher global commodity prices fade.

After a period of severe adjustment to eliminate imbalances and restructure the banking system, the Icelandic economy is projected to begin to grow again in 2011. The recovery is expected to be led by private investment in large energy-intensive projects and strengthening private consumption expenditure. There is considerable uncertainty about the impact of the rejection of the Icesave Agreement on the normalisation of international financial relations and on the attractiveness of Iceland for investment.

Ireland is continuing to undertake a comprehensive and vital adjustment programme to reduce its macroeconomic imbalances and restore its banking system to health. Despite robust export growth, weak domestic demand and ongoing fiscal consolidation have prevented an economic recovery from unfolding so far. As domestic demand stabilises, a modest upturn of output is expected in the course of 2011, with some acceleration in 2012. The unemployment rate is likely to stay high, and core deflation to continue.

Growth in real GDP this year should exceed that of 2010, but rising labour-supply constraints and further interest rate hikes will temper activity in 2012. Annual inflation will remain above the 1-3% target band until the beginning of next year.

After slowing during 2010, growth picked up in early 2011, driven by the acceleration in world trade. Inflation also increased significantly, due in part to higher oil and commodity prices. Output growth is projected to moderate during 2011 and 2012, resulting in annual growth rates of around 4½ per cent and helping to bring inflation back into the central bank’s target range of 2 to 4%.

Strong exports and a robust expansion of domestic demand are driving the continuing recovery. Consumption and investment are anticipated to continue to pick up during 2011, while financial and business services exports will remain strong. Although growth is likely to be higher than in neighbouring countries, uncertainties remain around the post-crisis development of the key financial sector.

The Mexican economy has embarked on a strong recovery from the recession of 2008-09. Initially driven by exports, activity is expected to be increasingly supported by domestic demand. After a strong rise in 2010 to 5½ per cent, GDP growth will ease in 2011 (4½ per cent) and 2012 (3.8%), as the expansion of exports will normalise.

The post-crisis recovery has been led by world trade and the rebuilding of stocks, but is set to become increasingly dependent on final domestic demand. Industrial production and capacity utilisation are close to pre-crisis levels, reviving business investment. On the other hand, private consumption is likely to remain subdued due to low wage growth and fiscal and monetary tightening.

A devastating second earthquake has derailed a recovery already weakened by exchange-rate appreciation and private-sector efforts to reduce high levels of mortgage debt. Reconstruction and other one-offs will set the stage for a strong rebound in the second half of this year and into 2012.

Norway has fully recovered from the global economic crisis. Growth is projected to rise through 2012 on the back of increasing private consumption and investment, despite stagnating oil and gas exports. Inflation has remained low so far, partly due to moderate wage rises, but the acceleration of output and increasing pressures on production capacity will lift it somewhat through the projection period.

The Polish economy is projected to expand by close to 4% in 2011 and 2012 thanks to strong public investment in 2011, partly related to EU-financed infrastructure projects and the 2012 football championships, a recovery in business investment in 2012 and robust private consumption.

The economy is expected to continue contracting in 2011 and most of 2012, as fiscal consolidation and deleveraging gather pace. Persistent domestic demand weakness will lead to lower inflation once the effects of more expensive oil and hikes in indirect taxes have dissipated. Exports should remain dynamic, underpinning the end of output losses towards the end of 2012 and a gradual reduction of the current account deficit. Unemployment is set to rise further.

The economy rebounded strongly in 2010, and is expected to continue to do so in 2011, driven by strong external demand and business investment. Household consumption, however, will be damped by fiscal consolidation and persistent high unemployment. Growth should be more balanced in 2012, not least due to more favourable labour market developments.

The recovery continues to be mainly supported by external demand and restocking. Growth should gradually strengthen as private investment and consumption gain momentum. The unemployment rate is projected to peak by mid-2011 as activity picks up. Inflationary pressures stemming from a surge in global food and energy prices should peter out, and persistent economic slack will contain underlying inflation pressures.

Economic growth is projected to strengthen gradually, reaching 1% in 2011 and 1½ per cent in 2012, as the damping impact of downsizing in residential construction diminishes and the international environment improves. As growth picks up, the unemployment rate will fall slowly to around 19% by end-2012. Consumer price inflation will tend to fall, once the effect of rising energy and food prices and the increase in the VAT rates drop out.

GDP has fully recovered its pre-crisis level. Vigorous growth is expected to continue as external demand remains solid, though at a more moderate pace than in recent quarters. Employment growth will also be robust, and accordingly the unemployment rate will continue to decline. However, as some spare capacity remains in the economy, core inflation should remain moderate.

Economic growth is expected to remain firm in 2011 and 2012, driven by strong domestic demand. Growth will slow toward the end of 2012, progressively returning to its potential rate, as the output gap closes. Unemployment is projected to decline further while inflation will rise to slightly above 1% in 2012.

After approaching 9% in 2010, growth is projected to slow to 6.5% in 2011 and 5.3% in 2012, as credit conditions, broadly defined, become tighter. The current account deficit is projected to rise further, to 8.9% of GDP by 2012.