The economy: So when will our export-led recovery arrive?

Alistair Darling has confirmed that last year was the worst for the UK economy since 1921, that the recession has cost us 6.2 per cent of GDP in lost output (at least), and that the economy will not fully recover to pre-recession levels for another two years.

So catastrophic was last year that Mr Darling was forced to downgrade his growth estimates for 2009 to a contraction of 5 per cent; this time last year he was expecting a relatively mild impact of between 3.25 to 3.75 per cent.

It might have been rather worse. Quite apart from the unprecedented fiscal and monetary stimulus given to the economy last year, the expected leap in unemployment implied by such a reduction in output – and which has followed every previous recession – did not materialise this time, probably because of wage restraint. This, in turn, has helped reduce repossessions, protect confidence and given the public finances a small but useful windfall.

Mr Darling maintains his prediction of a tentative recovery of around 1.25 per cent this year but he has trimmed back his optimism for next year, with a mid-point growth forecast of 3.25 per cent against his previous 3.5 per cent. The Chancellor suggested that this is primarily due to the marked slowdown in the eurozone economies, which form by far our largest trading partner. Yesterday's downgrade in Portugal's credit rating will not have eased market concerns about the stability of the zone (European leaders are due to meet again tomorrow in another attempt to defuse the Greek crisis).

Even so, the latest Treasury forecasts point to a healthy bounce-back, with growth hitting 3.5 per cent in 2012.

Mr Darling's upbeat assessment has helped make his numbers on borrowing add up – the stronger the growth, the lower the borrowing. But many in the City openly challenge his optimism.

One disturbing feature of the economic forecasts is that while inflation and growth are set for healthier trends, the current account deficit is set to widen from its pre-recession levels, a reflection of the collapse in world trade. So far the effect of the 25 per cent depreciation in sterling since 2007 has been muted, possibly because of the generosity of the car scrappage scheme (some 90 per cent of scrappage cars were imported), and is yet to trigger export-led growth.

The other headwinds for the economy over the next 18 months or so will be emanating from Threadneedle Street. The Bank of England is unlikely on its own projections to raise rates much, if at all this year – but during 2011 and 2012 they will almost certainly return to more normal levels, and mortgage rates with them. Given the high level of mortgage indebtedness, this will inevitably squeeze household budgets. The Bank is adamant that it will withdraw the near £200bn of cheap funding for bank lending via the Special Liquidity Scheme. The banks generally are still not fixed and are pulling back on their lending, despite the Government-set targets.

Just as many believe some of the tougher economic choices have been postponed until after the election, so we may soon see a much less rosy outlook for the economy than the one presented by the Chancellor.