Global economy can survive perfectly without USA?

So why even bother to argue in favour of decoupling today? Although I'm always wary of arguing that "this time it's different", I'm actually a bit of a decoupling fan. The simplest argument in favour of decoupling is that it has already happened. The US economy will post growth this year of about 2.0 per cent. By US standards, this isn't much.

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Back in the late-1990s, the US economy would typically expand by more than 4 per cent per year. Growth in the emerging world this year will, however, come in at around 7.3 per cent, a continuation of the heady rates of expansion seen in each of the previous three years. The US may have slipped up on a housing-related banana skin, but there is very little evidence of recessionary trouble in the emerging world.

Beyond this very simple observation, though, there are other important changes. Emerging markets now account for a bigger proportion of global economic activity. At HSBC, we calculate their share of global GDP to have risen from around 18 per cent in 1999 to about 22 per cent today. The emerging market share of global capital spending (including everything from machinery through to house building) has jumped from about 20 per cent in 1999 to well over 30 per cent today. We are witnessing an economic revolution.

These developments, in turn, are having a remarkable effect on global trading patterns. In the late-1990s, the top five contributors to Eurozone export growth were, in descending order, the US, the UK, Switzerland, Japan and Sweden. In the first seven months of 2007, the top five contributors were Russia, the UK, Poland, Opec and China. Indeed, over this latest period, Eurozone exports to the US have fallen (not surprisingly, given the strength of the Euro against the Dollar). In effect, the emerging markets have bailed out European exporters who, otherwise, would have been exposed to an increasingly chilly US environment.

None of this guarantees that decoupling is here to stay. Capital spending in emerging markets may be strong, but for what purpose? To satisfy the needs of emerging market consumers or, instead, to meet the import demands of US consumers? While more and more eurozone exports are heading to China and Opec, what happens if, for example, US demand slows a long way? Might Chinese demand for European semi-manufactures slow if Chinese companies are unable to export quite so much to the US? Might Opec's demand for a bit of European luxury fall away in the light of a slower US economy which, in turn, could lead to a plunge in oil prices?

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