Revenge Of The Decouplists


In the early months of the recession, there was a fierce debate between people who bought into so-called “decoupling”, the idea that the US got sink while the rest of the world grew, and those who thought it was hogwash. Without US growth, the anti-decouplists argued, there couldn’t possibly be growth in the rest of the world, especially export-heavy China. And as the recession turned into full-blown economic crisis, the anti-decouplists seemed to have won out.

But they may have declared victory too soon.

See, while the US clings to the faintest of faint recovery signs (third derivative improvements, gains in sentiment, etc.), China is showing genuine signs of strength. Not green shoots, but green stalks.

Official growth rates are exceeding estimates, the manufacturing sector is expanding after months of sharp contraction and real estate is even rebounding. A new report from CB Richard Ellis says that real estate volumes in Shanghai are headed back to their old highs (though prices remain somewhat depressed).

While weak demand from the US is clearly a major blow, the country obviously has the stored up savings to replace that with their own internal demand (they obviously have more than enough, because they’re also being called upon to stimulate our demand, as well).

Agian, the US remains moribund and though some of our exporters will benefit from China’s rebound, undoubtedly, it’s unlikely that this itself will actually revive the American economy, in part because a relatively small percentage of the population really works in export-driven industries. And to the extent that China’s recovery boosts the price commodities, that will act as a drag on growth.

After a brief crisis, the decouplists may win yet.

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