Thursday, November 15, 2007

Recession and Decoupling

by Bill McBride on 11/15/2007 11:54:00 PM

The cover story in The Economist: America's vulnerable economy

IN 1929, days after the stockmarket crash, the Harvard Economic Society reassured its subscribers: “A severe depression is outside the range of probability”. In a survey in March 2001, 95% of American economists said there would not be a recession, even though one had already started. Today, most economists do not forecast a recession in America, but the profession's pitiful forecasting record offers little comfort. Our latest assessment (see article) suggests that the United States may well be heading for recession.
Does the cover curse apply to The Economist? In this case, I think a U.S. recession is likely (I agree with The Economist), but I'm not so sure about the decoupling theory.

From the Financial Times: China fears impact of US slowdown
China’s commerce ministry warned on Thursday that a slowing US economy would trigger a drop in Chinese exports that would mark a “turning point” for China’s rapid economic growth.

A global economic slowdown ... “will be the biggest challenge to China’s economy next year”, a report from the ministry’s policy research department said.

The report is Beijing’s first public comment on what repercussions it expects from the global credit crisis and a sign that the government does not support the view that Asian growth has “decoupled” from the US. “If demand in the US drops further, Chinese exporters will be devastated by a rapid and continuous fall in orders,” the report said.
That doesn't sound like decoupling to me.

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