Regardless of whether the US is already in recession, risks
on that score are clearly rising as the housing collapse
erodes household wealth and spending, and writedownsaddled
financial institutions tighten lending standards.
The rest of the world isn’t immune to the gloom stateside.
We still, however, expect world growth to hold up at a
4.2% pace in 2008 even in the likely event that the US
picture darkens further.
Contributing to this guarded optimism is the decline in
the US economy’s global footprint in recent years. Outside
the US, the data are also still generally mixed, with Europe
cooling but Japan’s growth doubling expectations in the
The US may have been the world economy’s locomotive in
the second-half of the 1990s but it hasn’t provided much
leadership for either global GDP or commodity markets
in recent years, and bad news stateside consequently
doesn’t create the same broad downside risks as it
once did. In the last three years, the so-called BRICA
economies—combining the largest emerging markets
and Middle East oil exporters—have accounted for about
40% of global growth, three-to-four times the US share
(Chart 1). Global trade patterns tell a similar story. A 6%
rise in Asia’s share of global imports since the start of the
decade, largely at the expense of the US (Chart 2), means
the latter is not as important for most areas as it was even
a decade ago (Chart 3).
I'm still not sold completely on the idea of decoupling, but I'm coming around.