Hong, Liu; ChinaView.cn (Xinhua) 2008-08-26
A sharp slowdown in the United States has in the past triggered a severe decline in world growth, but the dynamic of the world has now changed and a fundamental shift is underway.
“We are experiencing the first episode in history of reverse coupling, in which the rest of the world pulls the US forward rather than the opposite”, said Fred Bergsten, Director of the Peterson Institute for International Economics, a leading think tank in the US.
Bergsten said he believed that “trade has saved America from recession” because “the improvement in trade balance has accounted for the totality of US economic growth over the three quarters”.
This opinion has been echoed by many US economists and officials.
Henry Paulson, US Treasury Secretary, has repeatedly emphasised his belief that the US economy will not fall into a recession, given that the world economy is fundamentally strong, particularly in the emerging countries.
Despite pronouncements by many observers that recession had already set it, the US economy grew at an annual rate of 1.9 percent in the second quarter of 2008, increasing from a growth of 0.6 percent in the first quarter and a decline of 0.2 percent in the fourth quarter of 2007.
According to the US Federal Reserve, this was mainly a result of the strong growth of US exports, particularly the exports to emerging markets.
As the largest emerging market, China is now contributing more to global demand that the US, said Jim O’Neill, chief economist at Goldman Sachs. He noted that when the BRICs – Brazil, Russia, India and China – are considered as a whole, that impact grows.
The vitality of domestic demand in emerging and developing nations has provided a “trade shock absorber”, enabling a robust expansion of US exports over the past year even while the country’s domestic demand has slowed, according to a recent report by the International Monetary Fund (IMF).
Analysts believe there have been two important shifts in the global economic dynamic. Firstly, emerging economies have transformed into locomotives of the world economy. China, for instance, has accounted for around 25 percent of global growth over the past five years, according to data from the IMF. The BRICs together accounted for almost half of the global growth, and all the emerging and developing economies combined about 66 percent, compared with 50 percent in the 1970s.
Secondly, the pattern of trade itself has changed, as almost half of the exports from emerging and developing nations are now directed towards other such economies, with rising intra-regional trade in Asia most notable.
“While some US companies may have cut jobs by outsourcing to China, think of how many more jobs they might be cutting if they were losing money or barely profitable”, said Zachary Karabell, President of River Twice Research.
Africa has also benefitted from trade with emerging economies. Investments in the continent by emerging financiers increased dramatically from less than US$1 billion per year before 2004 to $8 billion in 2006 and $5 billion last year, according to a recent report by the World Bank.
Obiageli Katryn Ezekwesili, the World Bank’s vice president for the Africa region, said that growing commitments in infrastructure in Africa by other developing nations are helping address the huge infrastructure deficit facing the continent.
Consequently, the global economy has clearly decoupled itself from the US, and world growth is likely to approach 4 percent in both 2008 and 2009 despite the sharp slowdown in the United States, said Bergsten.
“The traditional relationship where the world catches cold when the US sneezes no longer holds”, he noted. “China now plays a decisive role in the world economy as indicated by its dominant role in global economic growth.”