IMF and HSBC Economists on Global Shock Absorbers

Students revising for essays on globalisation might like to take a quick look at this new article by Charles Collyns and Krishna Srinivasan from the IMF and published in the Singapore Business Times. The article focuses on three structural changes in the balance of power and influence in the world economy which link to the reduced influence of the USA on global economic activity.

In their article they write that:

The divergence in performance between advanced and emerging economies points to an ongoing shift toward a multi-polar world, with a reduced reliance on the United States as the locomotive of the global economy. Emerging economies will not decouple from the advanced economies, but neither will they be derailed, as witnessed all too often in the past.

(1) First, strong internal growth in emerging and developing economies is providing a valuable global trade shock-absorber (Japan’s exports for example are holding up remarkably well because of tje continued growth of the Chinese economy)

(2) Second, the commodity price shock absorber is no longer working as it did in the past. Moderating demand in advanced economies has not led to the usual softening of commodity prices, in large part because the dynamism of emerging economies has sustained strong demand growth. - hinting here that we wont see the sharp falls in commodity prices associated in previous global downturns

(3) Third, financial shock absorbers are working through new channels as emerging and developing economies as a group have shifted to being a net source of savings for the global economy ......recently, the infusion of financial resources from sovereign wealth funds to recapitalize U.S. and European banks has helped to contain the impact of the financial crisis

Dynamics of the Global Economy are Changing available from here:

Stephen King has an article on the challenges facing emerging market economies in his weekly piece for the Independent

“The black hole stems from the power now being unleashed by the emerging world, by countries like China, India, Russia and Brazil. For a while, we rather patronisingly thought these countries would simply produce cheap goods for the benefit of the western consumer. Now, we’re discovering that their power and influence reaches much further”

In another research report published today, economists at HSBC claim that the emerging market countries have finally overtaken the USA and EU as the world’s largest economic zone - in a research note, HSBC said that “emerging markets had contributed more than 50 percent of global nominal growth in dollar terms over the last three years and were likely to represent even more as growth slowed in richer countries.”