Wednesday, November 28, 2007

How Might The Rest Of The World React To A U.S. Recession?

From The Wall Street Journal:

“The notion that the rest of the world has ‘decoupled’ from the U.S. came into vogue earlier this year, as overseas economies -- particularly emerging markets -- continued to post robust growth and Europe and Japan appeared to be enjoying a long-delayed upturn.

Policy makers joined the decoupling parade. In the spring, the IMF included a chapter in its April World Economic Outlook called ‘Decoupling the Train.’ The gist: The current weakness of the U.S. economy stems largely from housing woes -- and housing is less global than, say, computers and other parts of the U.S. economy. That is good news for the rest of the world.

But the U.S. is now flirting with something more severe than a mere slowdown. That -- along with rising oil prices and the specter of a global credit crunch -- is changing the picture.

Europe is showing signs of faltering, while Japan may be at risk of sliding back into recession. While developing economies like China are still on a steady boil, recent drops in their stock markets suggest investors are beginning to doubt their immunity to a U.S.-led slowdown.”

From Reuters:

“Confident commentary about emerging markets' resilience to a U.S. recession is being replaced by nervous re-examination of the so-called 'decoupling theory'. November saw emerging equities lose 15 percent after rising 45 percent year-to-date.

Many subscribe to the theory that world economic growth will increasingly be led by emerging markets and will therefore not be too badly affected even by a full-blown U.S. recession. Rising emerging powerhouses, led by China and India, the argument goes, can pick up a lot of the slack.”

From Seeking Alpha:

“As we look at different countries, they each have their thing (or things) that make them tick. During a U.S. event some of these places will hold up just fine.

The story in Vietnam seems like a candidate for ongoing health, a type of place I have previously described at being in its own world.

During the big bear market at the start of this decade, Australia was able to pull away and recover much faster than most other markets. That is the thing to this entire issue. There will be some markets that weather a U.S. downturn better than others. While this is obvious, it is also true.

Which countries will be the ones? I mentioned that Australia worked on the last go around. Norway not so much last time, but if oil stays high (above $80?) it might be a candidate. Norway obviously is a surplus country.”

No comments: