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Decoupling of world economies

Comments on Adam Carr “SCOREBOARD: Decoupling revisited”, 26/05/2009, http://www.businessspectator.com.au/bs.nsf/Article/SCOREBOARD-Decoupling-revisited-pd20090526-SDTAF?OpenDocument&src=sph

In my view, decoupling is happening and will be more pronounced in the coming years. There are a number of reasons for this decoupling. Firstly, the world economy may have come to the point that the capacity of the more advanced economies, especially the US, to continue to absorb the continuous and rapid expansion of the developing economies through imports may have reached a reflection point. The implication is that developing economies, especially the large and rapidly growing ones, will have to find other ways than relying on simply exporting their growing outputs.

Secondly, the current financial and economic crisis has made it clear that the US cannot continue to consume beyond its means, both privately and publicly. They must increase their savings from now on, or at least following the recovery. In so doing, its growth is expected to be slower, so its current account deficits will be reduced. This will add to the need for developing economies to rely more on themselves to maintain rapid growth.

Thirdly, some large developing economies have probably accumulated a critical mass to accelerate the so called South-South trade, that is, collectively act as a group to assist the growth of each other.

As Adam Carr, I don't have Nobel Prize either. But I would not be surprised at all that the more dynamic developing economies will recover much earlier than their more advanced counterparts from this world great recession. Further, I will not be surprised that they will maintain their rapid growth irrespective whether the US will or will not visit Japan’s 1990s experience following its bubble burst.

The rapid industrialisation of many developing economies simultaneously, especially the main large ones, is likely to see a change in the patterns of growth in the world economy. Decoupling will be a natural product out of that process.

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