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The Econo Miss

by Archives March 11, 2008

As the United States’ economy continues to slow, it drags its contemporaries down along with it. Japan, the United Kingdom and the European Union are feeling the effects. Britain is just beginning to feel the effects of its own housing crisis, similar to that being experienced in the United States.
Despite the woes of mature and very integrated economies, emerging markets – those in the transitional phase between developing and developed nations – are feeling the downturn less than was expected and are projected to support global economic growth in 2008.
Such economies usually have untapped resources, increasing domestic consumerism, and are on their way to technological advancement. About 25 countries, from former Soviet Bloc countries, to states like Israel, Mexico and the Philippines, are now considered to have emerging markets. The four largest emerging economies are Russia, Brazil, India, and China, which are the least dependent on imports from the U.S.
This month, the Institute for International Finance released a report outlining the robust private and public investment going into developing economies. Overall, net private capital flow increased to US$782 billion in 2007 from 2006’s previous record of US$568 billion, in spite of many commercial and investment banks having numerous credit problems in North America and Western Europe.
The money for emerging markets with more potential for rapid and stable growth comes from an outflow of American capital, Russia being the largest recipient of foreign investment. Although the growth of mature economies is expected to reach only 1.8 per cent this year, that of emerging markets as a whole is expected to reach 6.6 per cent. Asia will see the fastest growth at 8.1 per cent, followed by Eastern Europe at 6.0 per cent.
A part of emerging markets’ economic autonomy is based on decoupling, where emerging markets, especially eastern European and Asian economies, have broadened and deepened enough that they no longer depend on American growth. This leaves them rather insulated against shocks, such as the current housing and credit crisis. Although sales to the U.S. have weakened, sales to other emerging economies have increased, in addition to domestic consumption and investment.
This rapid development has allowed emerging economies to withstand the slowing of largest state economies, strengthening their rising commodity prices and real income gains; a combination which makes them very attractive to equity and debt
investors.

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