Morgan Stanley Smith Barney characterized its outlook for 2011 with the phrase “recovery becomes expansion.” The business-cycle recovery in the global economy that began in the summer of 2009 is now an expansion, it says in a new report.

The global economy, at $62 trillion, is now larger than ever, it says, citing statistics from the International Monetary Fund. And at almost $15 trillion, the U.S. economy is larger than it was at the onset of the recession, at least in nominal terms. And within a few months, it is likely to enter expansion in real terms.

The growth won’t be evenly distributed around the world, though. Morgan Stanley Smith Barney expects emerging market economies to grow more than 6%, while developed market economies will grow at a slower 2%. Emerging markets will therefore account for three-fourths of global growth, it says.

For investments, the company remains overweight equities, commodities, REITs and inflation-linked securities; market weight emerging market debt and managed futures; and underweight cash and bonds. More specifically, within global equities, it sees the most value in emerging markets and commodity-sensitive economies like Canada and Australia. Within global bonds, it is overweight corporate debt, both investment-grade and high-yield, and underweight in developed market sovereign debt and short-duration debt.

As far as interest rates are concerned, the company expects “decent growth combined with very low inflation” in the developed countries to prompt central banks to keep policy rates steady until 2012. However, emerging market central banks will continue to hike policy rates to restrain strong local GDP growth and ease inflation pressures, it says.