Despite the 10% unemployment and 3.9 million foreclosures in the U.S. this year, Bank of America Merrill Lynch's global research group are highly optimistic about economic growth for the U.S. and the world for the coming year, economists in the group said at a press conference today. These economists forecast global domestic product will grow 4.4% in 2010, led by China at 10%. Inflation will be low, U.S. equities will perform well, and the dollar will strengthen against some other currencies, these number-crunchers say.

"One reason why we're optimistic about U.S. growth is because of policy; we think policymakers will continue to add new strategies to rehabilitate our economy," says Ethan Harris, head of North America economics. "The Fed wants to see real recovery, including improvements in the job market and a healing of the financial system, next year." Harris expects the Fed will start hiking interest rates in March 2010. He also believes that historically, big recessions yield big recoveries; he predicts the U.S. will achieve 3.2% growth in GDP in 2010. He expects a further fall in core inflation and projects that the U.S. Consumer Price Index will be 2.5 percent next year.

U.S. job recovery will be based on "companies that have laid off five people hiring two back," Harris says. There has been a recent overreaction among U.S. companies to economic news which led to over-cutting of staff, he believes. In the second quarter, he says, we will see jobs growth, if only because the government will hire a massive number of Census workers. Green technology and the call for energy savings could cause some job creation, he says. The healthcare, technology and export manufacturing should also provide jobs, according to David Bianco, chief U.S. equity strategist.

The economists feel less certain about the future of equities in the coming year. "The past decade for equities has been abyssmal," notes Bianco. Yet he is hopeful that foreign demand will help U.S. companies. "S&P 500 companies have proved they can replicate their business models overseas," he notes. Forty percent of these companies' profits are coming from offshore, he points out. Technology, energy, industrial and material stocks should all perform well next year, partially driven by foreign business. And "the financial sector will probably be the most attractive in 2010, it will climb on surprisingly high earnings," he says.

Corporate credit should normalize next year, opines Jeffrey Rosenberg, credit strategist, with high-yield returns reaching 10%. This should affect the flow of asset allocation. "In 2008, investors took their money out of stocks and put it into their mattress — in other words, into money market funds," he says. But in 2009, $500 billion moved out of money market funds and into credit funds, Rosenberg says. In 2010, he expects to see a shift back into the equity markets. Rates on U.S. Treasuries should rise next year and baby boomers may want to buy them, these economists project.

Commodity strategist Francisco Blanch believes gold prices prices will continue to rise and as countries continue to print currency they will need to build up their reserves of gold. Oil and coal demand should also rise, especially in emerging markets, and the price of oil should reach $100 per barrel by late 2010, he says. The prospects are dimmer for natural gas, aluminum and copper.