[R-G] Decoupling or Globalisation - But Not Both

[Yoshie Furuhashi]

See, also, Stephen S. Roach, "The Great Meltdown? A Subprime Outlook
for Asia and the Global Economy," Japan Focus, 24 October 2008,
<http://japanfocus.org/products/details/2556>. -- Yoshie

<http://blogs.ft.com/davosblog/2008/01/decoupling-or-g.html>
January 23, 2008

Decoupling or globalisation - but not both

Posted by: Stephen Roach, Chairman, Morgan Stanley Asia

Dreams of decoupling danced in the air on this first official day of
meetings at Davos. Decoupling, of course, is the latest macro fad - a
scenario where the world no longer sneezes when the US catches a cold.
The decoupling enthusiasts were out in full force at the kick-off
session on the global economy on Wednesday morning. As a long-standing
panelist in this session - with the exception of last year, when only
optimists were invited - I didn't offer much support for this view.

My case is relatively simple. Developing Asia - where the growth
dynamic is the strongest and the hopes of resilience are the deepest -
remains very much an externally-dependent economy. For the region as a
whole, exports hit a record high of 46% of GDP in 2007 - more than
double the 19% share of 1980. At the same time, private consumption
fell to a record low of 48% of pan-regional GDP in 2007 - down sharply
from the 66% reading in 1980. If the fast growing economies of East
Asia were truly decoupled, these trends would be the opposite -
exports would be falling and domestic consumption would be rising.

The decoupling crowd also dreams of alternative sources of global
consumption arising from Asia's two new giants - China and India -
that would be more than sufficient to offset a shortfall in US
consumption. Don't count on it. The US consumed over $9.5 trillion in
2007 - fully six times the combined consumption totals for China ($1
trillion) and India ($650 billion). It would be almost mathematically
impossible for "Chindia" to fill the void that is likely to be left by
a consolidation of the American consumer. For externally-led
Developing Asia, the proverbial sneeze in the face of a US cold is
more likely than not. Maybe that's what the recent sharp correction in
Asian equity markets is all about.

In the Q & A part of the session, howls of protest came from
representatives of Latin America, Central Europe, and even Asia. The
European decoupling advocates accosted me in the halls outside the
session.  Yet globalization, long the mantra of Davos, is all about
increased integration of the global economy through trade and capital
flows. As I said to one of the more hopeful: "You either believe in
decoupling or globalization - but not both."
--
Yoshie
<http://montages.blogspot.com/>