America, the euro zone and the emerging world are heading in different directions

This year has turned out to be a surprisingly good one for the world economy. Global output has probably risen by close to 5%, well above its trend rate and a lot faster than forecasters were expecting 12 months ago. Most of the dangers that frightened financial markets during the year have failed to materialise. China’s economy has not suffered a hard landing. America’s mid-year slowdown did not become a double-dip recession. Granted, the troubles of the euro area’s peripheral economies have proved all too real. Yet the euro zone as a whole has grown at a decent rate for an ageing continent, thanks to oomph from Germany, the fastest growing big rich economy in 2010.

The question now is whether 2011 will follow the same pattern. Many people seem to think so. Consumer and business confidence is rising in most parts of the world; global manufacturing is accelerating; and financial markets are buoyant. Investors today are shrugging off news far more ominous than that which rattled them earlier this year, from the soaring debt yields in the euro zone’s periphery to news of rising inflation in China.

Earlier this year investors were too pessimistic. Now their breezy confidence seems misplaced. To oversimplify a little, the performance of the world economy in 2011 depends on what happens in three places: the big emerging markets, the euro area and America. (Yes, Japan is still an economic heavyweight, but it is less likely to yield surprises.) These big three are heading in very different directions, with very different growth prospects and contradictory policy choices.