Troubling news from the world financial markets(US markets are closed today in observance of Dr. Martin Luther King’s birthday) as stock prices decline on fears of United States recession. The New York Times points out that:

The angst about the United States belies the popular theory that Europe and Asia are not as dependent on the American economy as they once were, in part because they trade more with each other. The theory, known as decoupling, has been used to explain why economies like China and Germany have kept growing robustly, even as the United States has slowed.

Emphasizing the fact that despite the strong growth of Asian economies in the past decade, United States can still exert a powerful economic pull on those nations. The global market seems to persist as officials from the European Central Bank have also questioned the idea that the world’s major markets have “decoupled”, making them less subject to the recent downturn in American fortunes.

Last May Macroblog quoted Goldman Sachs Global Markets Research Group in asking: “how bad it would have to get for the global decoupling theme to unravel?” - perhaps that day has arrived? I will leave it to someone more sophisticated than myself to determine whether or not today’s events signals a complete unravelling of the global decoupling theme.

I would only add that since the United States is one fecta in a trifecta of economies including Europe and Asia, it should not be surprising that economic woes in one pillar of the global economy should affect its two partners. How are markets outside of this triad faring today? Perhaps that is a good avenue for investigation into the true nature of decoupling.

This entry was posted on Monday, January 21st, 2008 at 1:38 pm and is filed under Economics, Globalization. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.