<http://blogs.ft.com/davosblog/stephen_roach/index.html>
Decoupling or globalisation - but not both
Posted by: Stephen Roach, Chairman, Morgan Stanley Asia
Dreams of decoupling danced in the air on this first official day of meetings at Davos. Decoupling, of course, is the latest macro fad - a scenario where the world no longer sneezes when the US catches a cold. The decoupling enthusiasts were out in full force at the kick- off session on the global economy on Wednesday morning. As a long- standing panelist in this session - with the exception of last year, when only optimists were invited - I didn’t offer much support for this view.
My case is relatively simple. Developing Asia - where the growth dynamic is the strongest and the hopes of resilience are the deepest - remains very much an externally-dependent economy. For the region as a whole, exports hit a record high of 46% of GDP in 2007 - more than double the 19% share of 1980. At the same time, private consumption fell to a record low of 48% of pan-regional GDP in 2007 - down sharply from the 66% reading in 1980. If the fast growing economies of East Asia were truly decoupled, these trends would be the opposite - exports would be falling and domestic consumption would be rising.
The decoupling crowd also dreams of alternative sources of global consumption arising from Asia’s two new giants - China and India - that would be more than sufficient to offset a shortfall in US consumption. Don’t count on it. The US consumed over $9.5 trillion in 2007 - fully six times the combined consumption totals for China ($1 trillion) and India ($650 billion). It would be almost mathematically impossible for "Chindia" to fill the void that is likely to be left by a consolidation of the American consumer. For externally-led Developing Asia, the proverbial sneeze in the face of a US cold is more likely than not. Maybe that’s what the recent sharp correction in Asian equity markets is all about.
In the Q & A part of the session, howls of protest came from representatives of Latin America, Central Europe, and even Asia. The European decoupling advocates accosted me in the halls outside the session. Yet globalization, long the mantra of Davos, is all about increased integration of the global economy through trade and capital flows. As I said to one of the more hopeful: "You either believe in decoupling or globalization - but not both."