Today lots of experts speak about the weakness of the US economy. There are plenty of analytical materials about the advantages of the emerging markets at the same time. These contradictions raise the question: can the global economy survive a major US slowdown?
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In the recent past, the answer has been a definitive "no". In 2000, the year before the last recession, the global economy expanded at a rate of 4.2 per cent. Within the overall figure, output in the developed world rose 3.7 per cent, while output in the emerging world rose 6.6 per cent. In 2001, the year in which the world economy succumbed to the earlier stock market collapse, developed world output rose 1.2 per cent while emerging world output rose 3.2 per cent. So, although emerging world growth remained stronger than developed world growth, the loss of momentum was, in fact, greater in the emerging world.
The 2001 downswing was US-led. US consumer spending growth more or less halved that year, while capital spending collapsed. Some countries reacted very quickly to America's problems. Japan's nascent recovery disappeared in a puff of recessionary smoke. Turkey and Argentina suffered personal crises (arguably, these were connected more to the emerging market difficulties of the late-1990s).
The eurozone economies held up well for about six months (allowing eurozone policymakers to celebrate temporarily their good economic management) only to plunge into a major downswing in 2002 and 2003.
There were one or two exceptions. The UK performed remarkably well, supported by a fortuitous loosening of fiscal policy. China continued to boom, perhaps benefiting as companies the world over looked to cut costs through furious outsourcing. Nevertheless, despite China's strength, other Asian economies mostly surrendered to US economic weakness. Hong Kong, Malaysia, Singapore and Taiwan all found themselves nursing their economic wounds in 2001.
Past performance, then, is not encouraging for the decoupling thesis. Many argued in favour of decoupling in 2000. The stock market boom was made in America. The tech bubble was an American invention.
The US was more vulnerable than others because of its sizeable balance of payments deficit. All reasonable points, perhaps, but they all proved to be irrelevant. We now know that the rest of the world was simply not immune to a US economic downswing.
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