Decoupling
What is it?
Decoupling is the notion, popular before the financial crisis erupted, that emerging economies were distancing themselves from the large Western economies and would be able to continue growing even if the West went into recession.
The metaphor comes from train carriages. On the one hand, in their un-decoupled state, economies like Brazil, Russia, India and China (the so-called BRIC countries) were closely linked to the economies of the US and Europe. If growth in the US and Europe slowed, so would growth in BRIC countries.
On the other hand, if decoupling had taken place, it was argued, the BRIC countries would be able to power themselves. The West could slow down, but BRIC countries would continue their fast growth - hopefully even powering the whole world economy back to health.
What's it got to do with the financial crisis?
The financial crisis has put the concept of decoupling to the test. Not everyone agrees that it is dead, though.
The evidence against decoupling having happened includes plummeting stock markets in emerging economies, a slowing growth rate in China, and investors' reduced appetite for risk.
After Lehman Brothers went under in September 2008, these so-called 'emerging markets' suffered along with everywhere else. The Economist points out that Russia's main stock exchanges were forced to suspend share trading for three days running, after the largest one-day stockmarket fall for a decade.
In Brazil, the main Bovespa share index fell more than 60% between May and late October 2008.
And in China, the International Monetary Fund (IMF) predicts that the rate of growth in the country's gross domestic product (GDP) will slow from 12% in 2007 to 9.7% in 2009 and 8.5% in 2010 - hardly a standstill, but still significant given claims that China needs to maintain very high levels of growth to stave off unemployment and social unrest over the gap between rich and poor. In November 2008, the Chinese government announced a two-year fiscal stimulus programme, worth a half-trillion US dollars, to help promote domestic growth.
However, some people say decoupling has taken place. Supporters say that stock markets globally may have plummeted during the depths of the crisis, but that once economic fundamentals reassert themselves, emerging economies will enjoy persistently higher growth than the West. In time, they will therefore account for a larger proportion of the global economy.
Whether they will be able to drive the West (and in particular, the US) back to growth is, however, another question. China, for one, is highly aware of the US dependence on its good financial favor, as a top investment official there noted to James Fallows in 2009.
Last updated on 7 September 2009.
