The Current Discussion: If countries around the world are doing so well economically, why are they still catching a cold when the United States sneezes?
Countries around the world have been doing very well precisely because globalization has greatly strengthened economic opportunities and linkages across countries. Even African countries, which grew at no more than 2.4% (lower than population growth) in the 1980s and 1990s, have averaged almost 6% growth per year in the last four years. A rising global tide has lifted all boats. The U.S. has contributed much to that rising tide, but so have many others (notably China and India).
However, every tide ebbs too, and when they do, all boats will go down. The U.S. will be less critical to the tidal level than in the past, because of the rise of China and other strong emerging-market economies. In the recession of 2001, China’s economy slowed only marginally, from around 10% to 8.3%. China might suffer a similar slowdown if there is now another U.S. recession. But 8.3% growth is still an excellent performance: it cannot be called catching a cold. This time, when the U.S. sneezes, expect several Asian countries to be affected, but without falling ill.
Stock markets are another thing altogether. They have only a limited connection with the real economy. Big global investors from the West have disproportionate market power in Third World markets. A billion dollars is peanuts for global investors, but is a huge sum for small markets. This is why the entry of so much foreign capital has ramped up prices in emerging markets, and its exit will now ramp them down. No “decoupling” here.
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