After bruising global downturns, the US economy has usually led the world back to growth, but developing countries could be the engine that powers the next recovery.
Despite fears just months ago that they would be among the biggest victims of the financial crisis, emerging giants like China, India and Brazil are set to rebound strongly next year, the Organization for Economic Cooperation and Development (OECD) predicted on Wednesday — as Europe, the US and Japan lag.
“It’s good to have a locomotive out there pulling the train,” OECD secretary-general Angel Gurria said, referring to China, India and Brazil. “But we can’t put the onus on their shoulders — they help, but they can’t get us out of the hole.”
The divergence between the emerging and the developed countries suggests that the once-popular theory of decoupling — the notion that emerging markets could be moving independently of developed economies — may make a comeback.
When the emerging markets were also brought low by the global financial crisis, the theory was abandoned for talk of “recoupling.”
Now, is “re-decoupling” at hand?
Gurria argues that the net result of faster emerging market growth would be “absolutely positive,” but he acknowledges that one early side effect is already evident in the form of surging oil prices, which have risen from US$33 a barrel in February to nearly US$70 now.
“Why is oil doubling when we are in the deepest recession ever?” Gurria asked.
“Decoupling is back as a thesis,” said Adam Posen, deputy director of the Peterson Institute for International Economics in Washington. “And we should recognize how different the current situation is from past crises.”
NEARING BOTTOM
Striking a somewhat optimistic note, the OECD said that, thanks to stimulus programs in the US and elsewhere, the downturn appeared to be nearing bottom. It warned, however, that the recovery was likely to be fragile, with unemployment growing and unused production capacity remaining for years.
And increased savings by US corporations and consumers could partly offset the stimulus, tamping down growth in the US and around the world.
Economists have furiously debated whether decoupling was taking place.
It would mean a fundamental shift in the global economy — that traditionally dependent developing economies move according to their own fundamental trends rather than the ups and downs of developed countries. Increasing independence could lead to increasing influence and a relative shift in global economic weight toward the emerging giants, especially China.
The 30 industrialized members of the Paris-based policy and research group account for roughly 60 percent of global economic output.
“I think it’s clear that the situation in emerging economies has changed if you compare it with where we were 15 years ago,” said Jorgen Elmeskov, acting head of the OECD’s economics department.
According to the OECD’s semi-annual report, China could grow 7.7 percent this year and 9.3 percent next year, faster than previous estimates. India could grow 5.9 percent this year and 7.2 percent next year, and Brazil’s economy, after slowing down, will reverse this year and expand 4 percent next year.
The OECD predicted the US economy would shrink by 2.8 percent this year and grow by 0.9 percent next year, a bit better than the flat performance the organization estimated in March.
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