It's all systems go in the US and beleaguered Japan is showing signs of an upturn. So what's up with the euro zone? Oliver Mangan takes a look

Recent economic releases have shown that the global economic recovery remains very much on course. There were some fears in the opening quarter of the year that the global upturn was in danger of losing momentum. The latest data out of the US and Asia should put these fears to rest.

In particular, the very strong US employment report for March showing that payrolls expanded by more than 300,000 in the month, together with large upward revisions to employment numbers for the previous two months, have allayed fears about the sustainability of the US economic recovery.

After all the talk about a jobless recovery, it turns out that the US economy added more than 500,000 jobs in the first quarter of the year.

Meanwhile, leading indicators of US activity are pointing firmly upwards. ISM survey data for both the manufacturing and services sectors of the economy posted very strong readings in March, pointing to further robust economic growth in the coming months.

Confidence levels improved in the US in March also after slipping earlier in the year.

All policy levers remain firmly focused on growth in the US. The Fed seems in no hurry to lift rates from their current exceptionally low level of 1 per cent.

Budgetary policy remains expansionary while the dollar has fallen significantly over the last two years. At this stage, expectations that the US economy could expand by 4.5 per cent this year seem entirely reasonable. This would be the strongest US growth rate in two decades.

The biggest turnaround has been in the Japanese economy where GDP rose by 2.7 per cent in 2003 with a similar rise expected in 2004. Japan has been in recession for much of the past decade so this marked pick-up in activity is most welcome. It has been led by a sharp turn up in exports, principally to other Asian countries. This has triggered a strong recovery in business investment.

Again, the latest leading indicators from Japan are very encouraging. The quarterly Tankan survey published at the start of April was very upbeat, pointing to a continued strengthening of activity. Meanwhile, deflationary pressures are easing, with signs at last of a revival in consumer spending also. Thus, the Japanese economy now appears to be on a sustainable recovery path.

The Bank of Japan, though, is expected to be patient and maintain its zero interest rate policy until well into 2005.

The Asian economies in general seem to be firing on all cylinders, with particularly strong growth in China. Up to now, much of the growth in Asia has been driven by exports. However, as in Japan, there are signs emerging of a strengthening of domestic demand also throughout the region. Overall, economic activity in Asia looks set to be underpinned by the favourable policy regime of low interest rates and continued currency intervention to maintain competitive exchange rates.

Turning closer to home, the UK economy has been growing above trend since last summer. There isn't that much spare capacity in the UK so the Bank of England has been tightening interest rates to head off a build up of inflationary pressures.

Nevertheless, the economy looks set to grow by over 3 per cent this year. The only area of weakness is the manufacturing/export sector.

This largely reflects the continued sluggishness of the UK's principal export market, the euro area. While buoyant growth and strengthening leading indicators are the order of the day elsewhere, the euro area economy remains characterised by weak growth and high unemployment.

What is even more worrying is that the anaemic recovery in activity appears to be already losing momentum. The ECB is blaming weak consumer and business confidence for this.

But the strength of the euro, restrictions on fiscal policy and concerns about the impact of structural reforms on jobs and incomes also appear to be hampering economic activity.

Structural reforms are absolutely necessary in the euro area. These need to be accompanied, however, by more growth orientated macro economic policies if they are to prove successful. The US and Japan leaned heavily on all policy levers - fiscal, monetary and currency - to trigger a revival in economic activity. The euro area needs to do the same.

Oliver Mangan is chief bond economist at AIB Global Treasury