Global economy can survive perfectly without USA?

The US slowdown has already contributed to a narrowing US balance of payments deficit which, in effect, implies a reduction in US demand for goods and services produced elsewhere in the world. Despite this – and despite, also, a much weaker dollar – the rest of the world still seems to be performing rather well. In fact, the emerging world may be performing rather too well. Last week, China's statisticians revealed that China's economy expanded at an 11.5 per cent rate in the third quarter, only a minor slowdown relative to an ebullient 11.9 per cent outcome in the second quarter.

These impressive growth rates suggest that China's economy continues to overheat. China's economy isn't the only one. Other booming emerging market economies include Argentina (with GDP up an estimated 7.8 per cent this year), Brazil (5.1 per cent), Chile (5.8 per cent), Poland (6.6 per cent), Russia (7.5 per cent), Turkey (5.3 per cent), Ukraine (7.4 per cent), Egypt (6.8 per cent), the United Arab Emirates (6.4 per cent) and India (8.8 per cent).

That they're doing so well in the face of a wilting US economy is more impressive. On closer inspection, there is a connection. Because many of these countries tie their currencies to the dollar, US interest rate cuts prevent emerging market central banks from tightening monetary policy very much, even if their economies are overheating. In other words, a weaker US economy leaves monetary conditions too loose in the emerging world, pointing to heightened inflationary pressures.

Eventually, the emerging markets may re-couple with the US, but that's only likely to happen after the current inflationary bubble bursts. That could be years, rather than months, away.

By Stephen King , managing director of economics at HSBC

Source: The Independent