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China's economic growth can soften U.S. slump

Emerging economies are now big enough to help but not save Western giants.

By Staff writers of The Christian Science Monitor, Staff writers of The Christian Science Monitor / February 13, 2008

A bag factory in China’s Guangdong Province hums with activity. The factory employs 2,850 workers. With the country’s race to build ever more infrastructure, China’s domestic economycontinues to boom, and its growth is expected to stay strong.

Jason Lee/Reuters

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Beijing and Boston

As the industrialized world slides toward possible recession, could still-booming developing nations come to its aid? Can China save America?

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Hardly. Economies such as China's and India's are growing fast, but they are still much too small to pull giants such as the United States or Europe out of a swamp, say most economists.

For the first time, though, developing countries – now accounting for more than half of global economic growth – could probably ride out the storm afflicting richer nations.

"China is not going to save the world," says Jonathan Anderson, chief economist at UBS Bank in Hong Kong. "But it is part of a very different picture. The US, Europe, and Japan will go in one direction, and the developing world will carry on."

And if the emerging markets do keep growing during a developed-world slump, economists note, they could at least cushion the blow for others. They will continue to import the industrial machinery that US and other advanced nations make and will still have an appetite for raw materials such as oil and minerals from the Middle East, Africa, and Latin America.

Since China, Russia, India, and Brazil, the main emerging markets, account for only about $6 trillion of gross domestic product (GDP) – compared with $32 trillion in the US, Europe, and Japan – the developing countries' continued growth can only "cushion the US decline in a modest way," says Arthur Kroeber, head of the Dragonomics economic consultancy in Beijing.

America still holds the key to much of what happens in the world economy this year, economists say. Other countries are already ratcheting down their growth forecasts because of headwinds facing the world's largest consuming nation.

Falling stock prices a worry

At the same time, many financial analysts fear that the subprime mortgage crisis has yet to fully unravel, and that banks worldwide could see their balance sheets weakened, linking much of the global economy in a slowdown.

"The strength of emerging economies is in some ways self-sustaining," says Ed Yardeni, president of Yardeni Research in Great Neck, N.Y. But "a recession in US could ... interact with the credit crisis to become something really awful."

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