Don't blame US for sinking feeling

What about that 'decoupling' thesis? One of the main triggers for the past week's global stock markets crash, most notably in the developing countries, was the fear of an impending recession in the United States.

Sure, it's for all the wrong reasons that US is in the spotlight. But the point is the US still matters. A slowdown in US growth this year has been accepted, but with the December figures of consumer spending and jobs, use of the 'R word' has gathered momentum.

Also, with the dollar in the doldrums and with an uncertain future, and oil experiencing record highs, the chances of a so-called global meltdown seems very much a possibility.

For this part of the world, especially the Gulf markets, the feeling till now has been that it is not yet globalised enough to be affected by what happens in the world's number one economy.

Yet the world today is globalised more than ever before. Both developed and emerging markets are inextricably tied, and funds have been flowing in and out of these markets, triggering the slide in almost all of them.

As an investment officer of a bank which issued a statement has said: "The recent sell-off is a kneejerk, emotional reaction to the sell-off in global markets."

It may take some time for things to settle down, he says, but given the strong fundamentals in the region, the positive trends in our market and economy will eventually continue. That sounds like the voice of reason.

The decoupling thesis is that the fast-growing economies of India and China, and some of the other emerging markets such as Russia and Brazil, are less and less dependent on the US and will continue to grow-in fact some even say will spur global growth-despite the slowdown in the US economy.

There is no doubt that these economies have attained some sort of a resilience that was missing a few years ago. And it is true that they are indeed driving global growth. But the dollar is still the leading currency, and the US economy still relevant to the bottomline of a majority of the export-driven companies in these countries.

Cumulative problems

The role of the US in global finance was amply demonstrated again, though more to shore up its own market, when the Fed cut interest rates by 75 basis points last week. It did lead to some recovery of global markets.

Here in the Gulf the central banks followed suit and cut rates, but thereby compounded problems of a different kind.

Indeed, these are desperate measures by the Fed, which does not bode well for the global economic scenario in the medium to long term.

One might argue that this region's deliberate 'coupling' with a weak US is hurting them. The Gulf will now experience even lower interest rates than it needs. Expect the calls for a review of monetary policy to grow louder. In particular, revaluation talk is bound to resurface: momentary decoupling.

And, since the decoupling idea overall may be false, the strength of the US is still everybody's concern.