The death of decoupling
When we put together our list of the worst predictions of 2008, one strong contender was the Economist‘s assertion from last March that "decoupling is no myth. Indeed, it may yet save the world economy." (It was eventually edged out by the same magazine’s early enthusiastic praise for Kenya’s election.) Paul Krugman’s already skewered the ...
When we put together our list of the worst predictions of 2008, one strong contender was the Economist's assertion from last March that "decoupling is no myth. Indeed, it may yet save the world economy." (It was eventually edged out by the same magazine's early enthusiastic praise for Kenya's election.) Paul Krugman's already skewered the decoupling editorial, which argued that developing economies had become self-sufficient enough that they would be able to weather the decrease in demand for imports from the developed world.
When we put together our list of the worst predictions of 2008, one strong contender was the Economist‘s assertion from last March that "decoupling is no myth. Indeed, it may yet save the world economy." (It was eventually edged out by the same magazine’s early enthusiastic praise for Kenya’s election.) Paul Krugman’s already skewered the decoupling editorial, which argued that developing economies had become self-sufficient enough that they would be able to weather the decrease in demand for imports from the developed world.
As the Financial Times‘s Krishna Guha points out today, the World Bank’s just-released Global Economic Prospects 2009, puts the final nail in decoupling’s coffin:
Import demand is projected to decline by 3.4 percent in high-income countries during 2009, while net private debt and equity flows to developing countries are projected to decline from $1 trillion in 2007 to about $530 billion in 2009, or from 7.7 to 3 percent of developing-country GDP.
As a result, investment growth in developing countries is projected to slow dramatically, rising only 3.5 percent in middle-income countries, compared with a 13.2 percent increase in 2007.
I’m hoping I’ll be able to dust this report off for next year’s worst predictions list but I kind of doubt it. Plus, Daniel Drezner thinks the World Bank is being way too optimistic.
Joshua Keating was an associate editor at Foreign Policy. Twitter: @joshuakeating
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