Friday 5 December 2008


DE-COUPLING, A THEORY PROVEN WRONG

The Economic Times, December 5, 2008

MUMBAI: With the emerging economies, including China and India, also being expressly hit by the economic recession in the US, UK, Japan and most of Europe, the de-coupling theory has been clearly rebutted.

What has buried the theory is the fact that many major economies are facing grave capital flow reversals, export contractions and resultant large-scale job losses. Although India has managed to post 7.6% GDP growth in the second quarter of this fiscal, it is facing the prospect of a further slide in growth in the three-four quarters at least, according to most economic think tanks.

China has already cut production heavily in major industries like steel, and is struggling to sell goods in non-western markets that are also beginning to see a consumption slowdown in the aftermath of the global crisis. The governments of both China and India are trying with varying degrees of resolve to give a fiscal support to their economies, in a bid to offset the negative impact of the export slowdown.

The Reserve Bank of India governor D Subbarao on Thursday virtually dumped the de-coupling theory. So it is now India’s official line so to say. The governor said in Hyderabad, “..in a rapidly globalising world, the de-coupling theory was never totally persuasive; given the evidence of the last few months—capital flow reversals, sharp widening of spreads on sovereign and corporate debt, and abrupt currency depreciation—the de-coupling theory has almost completely lost credibility. Growth prospects of emerging economies have most definitively been undermined by the ongoing crisis.’’ he added.

(...) [artículo aquí]

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