The improvement in economic and financial conditions in the past year is hardly surprising given the massive policy stimulus that was dumped into the system. However, the policy response needed to rescue the globe from the crisis threatens to create its own set of problems down the road.

Progress report on the US economic recovery

• Manufacturing companies have done well, with production rising at an annualised pace of more than 9% between June 2009 and January 2010. Those companies exposed to international trade have fared especially well as the volume of merchandise exports increased at a 26% annualised pace between the second and fourth quarters of last year. There is no doubt that production overshot on the downside during the meltdown, leaving shelves bare in many sectors. A reduced pace of inventory reduction accounted for almost half of the rebound in real GDP in the second half of last year.

• Higher production has meant a marked slowdown in the pace of labour shedding, and more hours worked. The outlook for the labour market remains a subject of intense debate. The decline in employment was unusually severe during the recession. Temporary employment has picked up sharply, however, small businesses – the source of most new jobs – remain reluctant to increase hiring.

• Trends in housing are also important in terms of the impact on consumer wealth and confidence, and overall financial repair. The plunge in housing construction appears to have run its course, and house prices have been edging higher in recent months. However, there is no evidence that the sector will become a positive source of growth anytime soon. Despite the collapse in construction, a large inventory of unsold properties will depress this market for some time.