DRS112

The decoupling debate
Mar 6th 2008 | HONG KONG
From Economist.com

Could recession spread from America?

Satoshi Kambayashi
“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.

One reason is that while exports to America have stumbled, those to other emerging economies have surged (see chart 1). China’s growth in exports to America slowed to only 5% (in dollar terms) in the year to January, but exports to Brazil, India and Russia were up by more than 60%, and those to oil exporters by 45%. Half of China’s exports now go to other emerging economies. Likewise, South Korea's exports to the United States tumbled by 20% in the year to February, but its total exports rose by 20%, thanks to trade with other developing nations.

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.

Sceptics argue that much of this investment, especially in China, is in the export sector and so will collapse as sales to America weaken. But less than 15% of China’s investment is linked to exports. Over half is in infrastructure and property. It is not just China that is building power plants, roads and railways; a large chunk of the Gulf’s petrodollars are also being spent on gleaming skyscrapers and new airports. Mexico, Brazil and Russia have also launched big infrastructure projects that will take years to complete.

The four biggest emerging economies, which accounted for two-fifths of global GDP growth last year, are the least dependent on the United States: exports to America account for just 8% of China’s GDP, 4% of India’s, 3% of Brazil’s and 1% of Russia’s. Over 95% of China’s growth of 11.2% in the year to the fourth quarter came from domestic demand. China’s growth is widely expected to slow this year but to a still boisterous 9-10%.

American downturns have often caused the prices of oil and other raw materials to slump, but this time China’s surging demand is propping up prices and fuelling booms in Brazil, Russia and the Middle East. Brazil’s exports jumped by 26% in the year to February. In turn, if prices stay strong, so will China’s exports to commodity-producing countries. A sharp slowdown in China would hurt them more than an American recession will.

The popular argument that business cycles should become more synchronised in a globalised world rests on an out-dated impression that poor countries mainly export to rich ones. Instead, emerging economies’ trade with each other has risen faster and now accounts for over half of their total exports. Emerging markets as a group now export more to China than to the United States (see chart 2).

Some contend that this mainly reflects imports of intermediate goods into China for assembly; the finished goods are then exported to America and so will be hurt by slower growth. There is some truth to this, although Asian exports to China are increasingly driven by China’s own domestic demand.

Another reason why globalisation and decoupling can co-exist is that opening up economies has not only boosted poor countries’ trade, it has also spurred their productivity growth and hence domestic incomes and spending.

A severe recession in America could still have a nasty impact on the developing world if commodity prices collapsed and if it caused stockmarkets to fall more steeply, depressing global consumer and business confidence. A sharper fall in the dollar could also further squeeze emerging economies’ exports.

But for perhaps the first time ever, developing countries would be able to make full use of monetary and fiscal policy to cushion their economies. In the past, when they were net foreign borrowers, capital inflows tended to dry up during global downturns as foreign investors shunned risky assets. This forced governments to raise interest rates and tighten fiscal policy. Economies with large external deficits are still vulnerable, but most emerging economies now have a current-account surplus and large foreign reserves; many have a budget surplus or are close to balance, leaving ample room for a fiscal stimulus if necessary.

Perhaps the best support for decoupling comes from America itself. Fourth-quarter profits of big companies, such as Coca-Cola, IBM and DuPont, were better than expected as strong sales growth in emerging markets offset a sharp slowdown at home. Bits of American business are rising above their own economy. With luck, the world economy can rise above America’s.

DRS112

lol...the one that almost every major source says we're in or about to be in.

But that's not the purpose of the article....thanks anyways...

DRS112

Stocks Slide on Renewed Fears of Recession

By MICHAEL M. GRYNBAUM
Published: March 7, 2008
Stocks slid on Wall Street on Friday as investors digested a discouraging employment report that revived fears the nation may already be in a recession.

The Dow Jones industrials dropped at the opening bell after the Labor Department reported that the economy lost 63,000 jobs in February, an unexpected and ominous decline. The blue-chip index recovered in morning trading but fell back in the afternoon, dipping nearly 200 points before pulling back.

http://www.nytimes.com/2008/03/07/bu...rssnyt&emc=rss


and again from businessweek

Jobs: A Frosty February Points to Recession
A decline in nonfarm payrolls of 63,000, along with downward revisions to previous months, has market pros betting on further big rate cuts from the Fed

Jobs: A Frosty February Points to Recession

DRS112

Who said anything about run? Good god man.

mudwhistle

There is no recession. Democrats are just strapped because they keep sending all their money to Hillary Clinton and Barack Obama.

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DRS112

Wrong....but thanks for playing....

Anyways...any of you guys in denial would like to start a thread about whether or not a recession exists start a thread about it.

But please....just because you can't comprehend what this thread is about, doesn't mean you can make it about whatever you want that you think might be related.

al Asaad

Reccessions are as much a state of mind as they are statistics.

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Stop the lynching of Obama

Richterscale

Wrong. You can't just wish away a loan crisis, or a tumbling dollar, or sinking real wages, or a tapped out system of over borrowed consumers. Those aren't states of mind. They are unfortunate facts.

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Google Sibel Edmonds

"How many people died from the Kama Sutra as opposed to the Bible? Who wins?" - Frank Zappa

Kanadesaga

Well it shows that we certainly aren't the big dog on the block anymore. That given the current effects of globalization and the ridiculous attitude of outsourcing being a good thing, we will be a third rate economy.

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"Soldiers lose their voice when they enlist. My sons spoke of that before they did enlist. That that, was a reality. And the public is their voice." Mary Tillman 5/9/08

DRS112

I disagree...it isn't a zero sum game....I think it shows that globalization is working and that countries are growing up and becoming independent, and doing it by liberalizing their markets....it means that as those economies grow, so will the demand of labor relative to the supply....it means they won't have massive unemployment which attracts outsourcing...