Decoupling debunked

This article was last updated on July 5

There is a popular theory going around that the U.S. had become “decoupled” from the rest of the world due to the emergence of new powerhouse economies like China and India. The theory goes onto say that a downturn in the U.S. would not slow the global economy since the new growth economies on the block had matured to a point where they weren’t as dependent on U.S. demand for growth. How wrong this was shown to be!

This theory is clearly flawed (for now anyway) as evidenced by the sub prime fiasco and associated fallout which wiped away trillions of dollars in real and paper wealth both in the US and globally. Most share markets around the world are down significantly and growth economies like India were down 30% this year. So when the US sneezes the rest of the world does indeed still catch a cold. Without US demand, leadership and financial capital a lot of these emerging countries would not have enjoyed the super charged growth they had over the last decade.

There is no denying though that countries and their economies are becoming much more interlinked. Financial markets now operate globally and the spread of multinationals has created globally focused organizations. Despite the credit crisis growth is still progressing (albeit at a slower pace), and that is in large part due the rise of a truly global economy that has emerged which is able to better buffer the effects of economic crisis in one region or country. I would in fact say that the world has become even more “coupled”.

With its strong economic, political and social systems the US will always be relevant and not become decoupled as some say. What are your thoughts?

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