Hamish McRae: If there is hope, it lies in the emerging world

Analysis

It is a two-speed world.

We in the developed world are facing at best a slowdown in the recovery and at worst a dip back into recession. But the emerging world, taken as a whole, never dipped into recession and now continues to bound ahead seemingly regardless of our woes.

Within the developed world forecasters still predict most countries will avoid another recession, but even the more optimistic accept it will be a close-run thing.

The fall-out in the financial markets over the past few days points to something worse. Shares have fallen in most major markets by more than 20 per cent. They are not in the blind funk of 2008, or at least not yet, so you might say they are signaling a mild recession rather than economic disaster. But given that most major countries have still to get back to their previous peak, even a slowing of recovery is dismal news for living standards and employment.

Comment on this is in danger of degenerating into a blame game, with the usual suspects lined up to be shot at: the eurozone politicians, Greece, the European Central Bank, President Obama and Federal Reserve chairman Ben Bernanke, the various politicians who were in charge five years ago, and of course the bankers.

Unfortunately, blame undermines confidence. Financial markets are always unreasonable and fickle beasts but there is no doubt their confidence is shot. That in turn transmits through to companies, who pare back their own investment and hiring plans, which effects growth.

But this is all to look at the global economy through the prism of western developed countries. There is another part of the world, the rest in fact, that continues to grow strongly. During our recession – seen from Asia not as a world recession but as a North Atlantic one – growth in the emerging countries taken as a whole never dipped below the zero point. There was no recession in China or India, though they were pretty concerned at what was happening in Europe and the US.

This time they are not so worried. They seem to have managed to decouple themselves from us. Indeed, Asia, Africa and much of Latin America seem to have cut their dependence on the West.

At a company level, the emerging countries may even have benefitted from our difficulties. Look at the way Tata Group of India was able to acquire Jaguar Land Rover, which it is now commendably turning round. It announced a big new investment a few days ago.

This shift of power has become so stark there have even been suggestions China might step in to rescue the eurozone, a turnabout of fortunes that would have been laughable a decade ago and is now pretty humiliating.

To point all this out is simply to observe the reality of the world economy right now. We may in the West indeed avoid a second leg to the recession, but we cannot avoid the loss of authority we have suffered and seem likely to continue to suffer. And that should make us ponder quite what we have been doing wrong and what countries in the emerging world, perhaps, might have been doing right.

Of course much of the emerging world's growth has been catch-up: applying commercial and industrial practice developed elsewhere and benefiting from lower labour costs and more favourable demography.

But the fact remains that half the world is growing fast and the other half is barely growing at all. That should make us sit up and think.