Global Downturn Hurting Emerging Economies/Asian 'Decoupling' Theory Discredited; Japan Prospects Dim

Reviewed by Takahiro MIYAO

Article:
Global Downturn Hurting Emerging Economies/Asian 'Decoupling' Theory Discredited; Japan Prospects Dim
The Daily Yomiuri (8/17/2008)
http://www.yomiuri.co.jp/dy/business/20080817TDY03001.htm

Comments:

It has been argued that emerging economies, especially the Asian economies including China and India, are so strong by themselves that they might be immune to the downturn of the U.S. economy. This is what is called the "decoupling theory," meaning that advanced economies and emerging economies tend to show independent movements, and not to fall into recession at the same time. Many of those who are optimistic about the Japanese economy believed this theory, hoping that decreases in exports for the U.S. and other advanced economies would be offset by increases in exports for emerging economies.

As pointed out in the Daily Yomiuri article linked above, however, it was just a matter of time before we see the "decoupling theory" break down. In fact, the recessionary pressure of the U.S. and European economies are now beginning to take a toll on many of the emerging economies, particularly China and India. As a result, the Japanese economy is being severely affected by the down turn of the U.S. economy, which has not been offset by emerging economies after all.

Although the decoupling theory does not hold, the time lag between the downturn of the U.S. economy and the slowdown of emerging economies should play an important role in moderating the negative impact on the Japanese economy and buying time for the Japanese government to adopt economic stimulus measures. Whether the government can actually make such a move to avoid a recession is another matter, depending on the political situation in Japan.

Acknowledgment:
This review is adopted from the following blog (with its Japanese translation):
http://glocom.blog59.fc2.com/blog-date-20080817.html