Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Chinese Tech Stocks CCP Paranoia and Best AI Tech Stocks ETF - 26th Oct 21
Food Prices & Farm Inputs Getting Hard to Stomach - 26th Oct 21
Has Zillow’s Collapse Signaled A Warning For The Capital Markets? - 26th Oct 21
Dave Antrobus Welcomes Caribou to Award-Winning Group Inc & Co - 26th Oct 21
Stock Market New Intermediate uptrend - 26th Oct 21
Investing in Crypto Currencies With Both Eyes WIDE OPEN! - 25th Oct 21
Is Bitcoin a Better Inflation Hedge Than Gold? - 25th Oct 21
S&P 500 Stirs the Gold Pot - 25th Oct 21
Stock Market Against Bond Market Odds - 25th Oct 21
Inflation Consequences for the Stock Market, FED Balance Sheet - 24th Oct 21
To Be or Not to Be: How the Evergrande Crisis Can Affect Gold Price - 24th Oct 21
During a Market Mania, "no prudent professional is perceived to add value" - 24th Oct 21
Stock Market S&P500 Rallies Above $4400 – May Attempt To Advance To $4750~$4800 - 24th Oct 21
Inflation and the Crazy Crypto Markets - 23rd Oct 21
Easy PC Upgrades with Motherboard Combos - Overclockers UK Unboxing - MB, Memory and Ryzen 5600x CPU - 23rd Oct 21
Gold Mining Stocks Q3 2021 - 23rd Oct 21
Gold calmly continues cobbling its Handle, Miners lay in wait - 23rd Oct 21
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Developing Economies Lead the Way Out of Global Recession

Economics / Economic Recovery Aug 03, 2009 - 03:06 AM GMT

By: Lloyds_TSB

Economics

Best Financial Markets Analysis ArticleFollowing the onset of the global credit crisis two years ago, it was generally believed that developing economies, particularly in Asia, would be better placed to weather the storm than some of the more advanced economies, such as the US and UK. It was reasoned that the export-orientated, savings-rich countries, with the support of China, faced little prospect of an external payments crisis and were one step removed from the bursting of the debt bubble created in western economies. De-coupling was the buzzword at that time. Yet, over the subsequent twelve to eighteen months, expectations that the developing world could distance itself from the global credit crisis faded amid a collapse in world trade.


Having risen by an annual average of 8% between 2003 and 2007, world trade volumes dropped by over 15% in 2008 - see chart a. Within the developed world, Germany and Japan bore the brunt of the downturn, with merchandise exports and industrial production in both countries falling sharply in 2008. But many of the newly-industrialising and developing economies, including China, Hong Kong, South Korea and Thailand were also badly affected.

The correlation between developing and advanced economy growth has risen sharply Chart b shows the correlation of GDP growth between developing and advanced economies over the past two decades. Despite earlier expectations of de-coupling, their economic performances have become increasingly intertwined. In the early 1990s, the correlation coefficient was volatile around zero, implying little or no relationship in the average GDP growth rates of the two economic regions. Over the past decade, however, the correlation has risen strongly.

While the high correlation suggests the average GDP growth rates in these two economic regions move in the same direction, it tells us nothing about the magnitude of these movements. Since the credit crisis erupted, not only have developing economies been dragged lower, but in many cases their over-reliance on external trade has left them exposed to far sharper downturns in growth - see chart c. For example, as a group, emerging market GDP dropped by 2.3 percentage points between 2007 and 2008, compared with a drop of 1.6 percentage points for the major advanced economies.

But developing economies have started to outperform in recent months Over recent months, however, the tide appears to have turned. Just as the developing economies took the sharpest knock following the credit crisis, these economies now appear to be bouncing back the fastest – see chart c. The bounce-back is being led by China. In the second quarter, China’s annual rate of growth rose to 7.9% from 6.1%. It was the first acceleration in China’s growth rate in more than two years. Other developed economies also appear to have recovered some poise. For example, Singapore’s GDP grew by an annualised 20.4% in the second quarter, bringing an end to the economy’s worst recession in 45 years. South Korea also posted a robust 2.3% quarter-on-quarter increase in GDP during the second quarter.

How have developing economies managed to bounce back so sharply over recent months?

As in the advanced world, part of the improvement in growth in the developing economies reflects a moderation in the pace of inventory liquidation. More fundamentally, however, it also reflects an improvement in global trade. With the world economy over the worst of the credit crisis, global trade flows appear to have bottomed out. For example, the Baltic Dry Freight Index – an index of shipping costs – has risen more than four-fold since the end of 2008, one of a number of key indicators suggesting that global trade is now starting to turn higher. Since developing economies tend to derive a disproportionate share of their national income from exports, early signs of a recovery in world demand tend to show up first in improvements in developing world GDP.

It is not only inventories and the turn in the world trade cycle, however, that have boosted developing economies in recent months. There are also signs that domestic demand conditions in some of these economies are improving, underpinned by government stimulus – particularly in China. A 4trn yuan ($585bn) stimulus plan is currently being implemented by the Chinese government comprising infrastructure spending, tax cuts and various incentives to induce consumers to buy cars and electronic goods. Apart from the stimulus, the Chinese government is also exerting pressure on banks to lend more. The impact of these measures is clearly evident. Over the first half of this year, Chinese fixed investment spending surged almost 34%, the fastest growth in nearly five years. Over the same period, the annual rate of China’s money supply growth has doubled to 28%. Recovery in developed economies raises hopes for stronger, more balanced growth ahead

There are hopes that the efforts taken by China, and other developing countries, to stimulate their domestic economies will help to support growth prospects elsewhere. If China can successfully wean itself of its dependence on exports, and develop a more efficient, market-based domestic economy, the prospects for China’s economy and, by extension, the world economy, would be that much stronger. For this to occur, however, China’s government needs to combine domestic stimulus with further substantial currency revaluations. Judging by the limited progress that has been made on this front over the past year, it remains to be seen whether the Chinese government has the political will to do so. Nonetheless, the recent signs of improvement in China and other developing economies provide cautious grounds for optimism that these countries may lead the world out of recession over the coming year.

Adam Chester, Senior UK Macroeconomist, Corporate Markets

For more information: Emile Abu-Shakra Manager, Media Relations Lloyds TSB Group Media Relations Tel 020 7356 1878 http://www.lloydstsbcorporatemarkets.com/

Lloyds TSB Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in