Global Business in the 21st Century
Decoupling is the source of a great deal of controversy. The economists argue about whether or not emerging economies will follow America into recession. The most pessimistic claim that as economies have become more interviewed through trade and finance, this can make business cycles more synchronized, not less. Recent data suggest decoupling is no myth, indeed may save the world economy (Global Agenda, 2008).
Decoupling does not meant that an American recession will have no impact on developing countries. The point is that their GDP-growth rates will slow by much less than its previous American downturns. One reason behind all this is because while exports to America have stumbled, those to other emerging economies have surged. Another supporting factor is that in many emerging markets domestic consumption and investment quickened during 2007. The consumer spending rose to almost three times as fast as in the developed world. Skeptics argue that much of this investment, especially in China, is in the export sector and so will collapse as sales to America weaken. Less than 15% of China’s investment is linked to exports, and over half is in infrastructure and property. It is not just China that is building power plants, roads and railways, a large chunk of the Gulf’s petrodollars are also being spent on gleaming skyscrapers and new airports. Other countries such as Mexico, Brazil and Russia have also launched big infrastructure projects that will take years to complete (Global Agenda, 2008).
The four biggest emerging economies, which accounted for two-fifths of global GDP growth, are the least dependent on the United States. Exports to America account for only 8% of China’s GDP, 4% of India’s, 3% of Brazil’s and 1% of Russia’s. Over 95% of China’s growth of 11.2% in the year to the fourth quarter came from domestic demand. China’s growth is widely expected to slow this year but to a still boisterous 9-10%. American...