The Economist: The Decoupling Debate: Emerging Markets
Could recession spread from America?
“DECOUPLING” is the source of a great deal of controversy. Economists argue about whether or not emerging economies will follow America into recession. The most pessimistic claim that as economies have become more intertwined through trade and finance, this should make business cycles more synchronised, not less. The slide in emerging stockmarkets on Wall Street’s coat-tails appears to endorse their view. Yet recent data suggest decoupling is no myth. Indeed, it may yet save the world economy.
Decoupling does not mean that an American recession will have no impact on developing countries. That would be daft. The point is that their GDP-growth rates will slow by much less than in previous American downturns. Most enjoyed strong growth during the fourth quarter of last year, and some speeded up, even as America’s economy ground to a virtual halt and its non-oil imports fell.
A second supporting factor is that in many emerging markets domestic consumption and investment quickened during 2007. Their consumer spending rose almost three times as fast as in the developed world. Investment seems to be holding up even better: according to HSBC real capital spending rose by a staggering 17% in emerging economies last year, compared with only 1.2% in rich economies. ...
Mark Perry has a post that provides more analysis of this development.
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