Increasingly, the story of the global economy is a tale of two worlds.
In one, there is only gloom and doom; in the other, there is light and
hope. In the traditional bastions of wealth and power -- America, Europe and
Japan -- it is difficult to find much good news. But there is a new world --
China, India, Indonesia, Brazil -- in which economic growth continues to
power ahead, governments are not buried under debt and citizens remain
remarkably optimistic about their future. This divergence between the once
rich and the once poor might mark a turn in history.
Over the past six months, much conventional economic wisdom has been
discredited. The experts who spoke confidently about unending global growth
-- the boomsters -- have been debunked. But the new pundits of pessimism --
the doomsters -- have demonstrated a similar hubris, ignoring evidence that
might complicate their story. Six months ago, stock markets worldwide
swooned in unison as the U.S. financial system seemed on the verge of
collapse. This led many to conclude that the emerging economies of Asia and
Latin America had been growing only because of their exports to the United
States and Europe; that they had no independent strengths of their own and
probably would collapse faster and more furiously than the sophisticated
economies of the West. After all, these were Third World countries.
But a funny thing happened on the way to a global depression. Once the
panic that seized global markets abated, there began a fascinating and
disparate recovery. The S&P 500 is roughly where it started the year, as is
the London FTSE. Japanese stocks have fared better, up nearly 7 percent.
Around the globe, though, markets are humming. China's Shanghai index
is up 45 percent, India's Sensex is up 44 percent, Brazil's Bovespa is up
38 percent and the Indonesia index is up 32 percent. Stock markets don't
tell the whole story, but many are rising because the underlying economies
of most of these countries are still registering significant growth.
Consider: In April, India's car sales were up 4.2 percent from a year
earlier. Retail sales in China rose 15 percent in the first quarter of
2009. China is likely to grow at 7 or 8 percent this year, India at 6
percent, and Indonesia at 4 percent. These numbers are not just robust but
astonishing next to those of the developed world. The U.S. economy
contracted at an annual rate of 6.1 percent last quarter, Europe by 9.6
percent and Japan by 15 percent, something that truly begins to rival the
Compare the two worlds. On the one side is the West (plus Japan), with
banks that are overleveraged and thus dysfunctional, governments groaning
under debt, and consumers who are rebuilding their broken balance sheets.
The United States is having trouble selling its IOUs at attractive prices
(the past three Treasury auctions have gone badly); its largest state,
California, is veering toward fiscal collapse; and the U.S. budget deficit
is going to surpass 13 percent of GDP -- a level last seen during World War
II. With all these burdens, the United States might not return to
fast-paced growth for a while. And its economy is probably more dynamic
than Europe or Japan's.
Meanwhile, emerging-market banks are largely healthy and profitable.
(All major Indian banks, government-owned and private, posted profits in
the fourth quarter of 2008.) The governments are in good fiscal shape.
China's strengths are well known -- $2trillion in reserves, a budget deficit
below 3 percent of GDP. Brazil is posting a current account surplus.
Indonesia has reduced its debt from 100 percent of GDP nine years ago to 30
percent today. Unlike in the West, where governments have run out of
ammunition and are praying that their medicine will work, these countries
have options. Only a year ago, their chief concern was an overheated
economy and inflation. Brazil has cut its interest rate substantially -- but
only to 10.25 percent, and it can drop it further if things deteriorate
The mood in many of these countries is upbeat. Their currencies are
appreciating against the dollar because the markets see them as having more
fiscal discipline and better long-term growth prospects than the United
States. Their bonds are rising. This combination of positive indicators is
The United States remains the world's richest and most powerful
country. Its military spans the globe. But since the Spanish empire of the
16th century, the fortunes of great global powers have begun to turn when
they get overburdened with debt and stuck on a path of slow growth. These
are early warnings. Unless the United States gets its act together fast,
the ground will continue to shift beneath its feet.
The writer is editor of Newsweek International and co-host of PostGlobal,
an online discussion of international issues. His e-mail address is