Jul 19, 2008
The Straits Times
WASHINGTON - THE global slowdown stemming in part from the deepening US financial crisis is hitting the world's richest countries the hardest, even as emerging nations, some with once-fragile economies, are proving relatively resilient.
In Britain, for instance, a severe housing slump and credit crunch sparked a 63 per cent drop in new British home mortgages this May compared with the same period last year.
'It affects everybody, and you need not be a home owner or have credit or be a consumer,' said Mr Martin Slaney, head of derivatives at GFT Global Markets in London.
Contrast that with oil-fat Russia - a red-hot emerging market. As in many commodity-driven economies in the developing world, soaring energy revenue has largely insulated Russia, the world's second-largest oil exporter, from the turbulence in global markets.
Its gross domestic product is expected to grow 8 per cent this year, and consumer spending continues to boom, with a 13 per cent increase so far this year, according to Troika Dialog, a Moscow investment house.
'We are overloaded with money, crazy amounts of money from the energy market,' said Mr Mikhail Bergen, a professor at Moscow's Higher School of Economics.
It marks a global economic role reversal of sorts. When financial crises hit the Asian markets in the 1990s and Argentina in 2001, the aftershocks spread to other emerging economies, plunging several into recession while wealthy countries went relatively unscathed.
Rather than taking its toll largely on residents of developing countries, this economic downturn may cause the greatest damage to those living in the wealthiest countries on earth.
The United States economy and financial system are more closely linked to those in other wealthy nations, particularly in Europe, where rising inflation and the weak dollar are adding to growing trouble.
The US and Europe have 'similar economies and share the potential problems of industrialised nations in terms of property price fluctuations and financials', said Mr Simon Johnson, chief economist at the International Monetary Fund. 'And they find themselves sharing variable degrees of vulnerability.'
As global wealth has shifted during the past decade, emerging markets have become not only increasingly stable but have also been claiming a larger portion of the world's riches than ever before.
If Californians are rushing to withdraw money from banks in their state, the situation in Kenya is just the opposite: People are flocking to banks to open accounts.
The Nairobi exchange, which lists mostly Kenyan companies and a handful of multinational firms, posted 10 per cent gains in the three months ended in June as local and foreign investors flocked to the initial public offering of cellphone giant Safaricom.
'I don't think there has been any impact,' said Mr Peter Wachira, a manager with AIG Global Investment in Nairobi, referring to the market turmoil. 'Where markets in developed countries have been going down, ours has been going up.'
That does not mean the emerging world is buffered completely, particularly if both the US and Europe slip into recession or if the financial crisis in the US claims more and bigger financial institutions. And without question, sectors of emerging economies are already being stung.
There is growing fear especially in the fastest-growing Indian technology markets, which include outsourcing, back-office operations and call centres. Those sectors are 70 per cent dependent on the US. Several Indian technology companies have slowed their hiring because of the US economy's slowdown. In May, industrial output was up 3.3 per cent, half the 6 per cent increase in the same month last year.
Exports in China - the darling of the 21st century economy - are also being hammered by slackening demand caused by the global slowdown and rising labour and material costs.
Yet experts said that might be exactly what China needs. A global slowdown - if tempered - could help China stage a soft landing for its breakneck growth.
'In some ways, this is not only welcome but desired by the Chinese,' said Mr Vikram Nehru, the World Bank's chief economist for East Asia and the Pacific.
WASHINGTON POST
No comments:
Post a Comment