Downturn in the Us – Crisis or Welcome Moderation for the World Economy?

Abstract

Problems in the US housing market triggered a surge in volatility in financial markets in 2007. Economic growth in the US has slowed markedly in recent quarters, with growing fears of recession. Given the size of the US economy, this will entail a decline in demand that will have a noticeable impact on the rest of the world. However, the global economy has so far been relatively resilient to the slowdown in the US. In spite of increased trade with the rest of the world, emerging market economies (EMEs) seem relatively robust to weaker exports. Growth in domestic demand remains robust in many of these countries, and there are growing signs of bottlenecks. Slower export growth may thus be a precondition for sustained solid growth in fixed investment and consumption in EMEs.