NEW YORK – In recent years, emerging-market countries, including those in Asia, have made impressive strides in strengthening their fundamentals, accelerating their economic growth and cushioning themselves against external shocks. Nevertheless, as the events of recent months have shown, emerging markets are not immune from the current bout of global financial turmoil.
In particular, slowing global economic demand poses daunting challenges for many Asian economies, especially those that are more dependent on export-led growth. While most Asian countries have had relatively limited direct exposure to mortgage-related assets, deleveraging by foreign investors and slowing external demand have simultaneously created tighter credit conditions and lower expectations for growth. This has led to heightened volatility in equity, money, and debt markets.
These developments put to rest the notion of “decoupling,” the idea that economic growth in emerging markets, whether in Asia or elsewhere, is independent from that of the developed world. As the current crisis makes painfully clear, in this era of global trade and investment, our economies − and our prosperity − are inextricably linked. In order to maintain strong economic growth in America, we need a strong, growing Asia, just as Asia’s success depends on a thriving US.
The US-Asia economic partnership can be strengthened if we heed the lessons that we have already learned from the ongoing turmoil. Undoubtedly, much of the current situation will be best understood with the benefit of time, but five lessons are already coming into focus, and we should consider their implications for the choices policymakers will make in the future.