Could the emerging world save the developed world again? The past few days have seen a new shudder run through the financial markets, with rising fears of a pause in US growth, maybe even a double-dip to the recession.
The US housing market in particular has experienced a double dip, with prices back to the levels of 2002, and consum-er and industrial confidence remain extremely weak. Within Europe there are rather differ-ent reasons for concern, with Greece inching towards another rescue and/or default, and even the great engine of European growth, Germany, seeming to slow a little.
And the economy here continues to disappoint.
Put all this together and it is almost certain some sort of slowdown is happening across the developed world. That is worrying because most devel-oped countries have yet to get back to their previous peak in output, reached some time in 2008, and because there is no ammunition left in the locker.
They cannot ease fiscal policy, for the only debate there is whether to tighten a little more slowly. And they cannot ease monetary policy any further, partly because of fears about inflation but also because interest rates cannot go any lower. So if something goes wrong now there is really nothing much that can be done. We are, so to speak, on our own. That awareness, as much as anything else, has led to this new bout of jitters.
If policy cannot help, or at least help much, then we have to rely on the self-healing characteristics of the world economy: the collective wisdom of the world's companies, financial institutions, savers and consumers. That would be dispiriting were it not for something else: the emerging world is still growing strongly.
You can see that in figures from the IMF's World Economic Outlook, which show how the emerging world as a whole just avoided a recession while the developed world plunged into one. They also show how the two largest emerging economies, China and India, grew strongly throughout the period.
They are still growing strongly now. The lead indi-cators that are most closely watched are the Purchasing Managers Indices (PMI) for the various countries. The latest UK manufacturing PMI, which fell from 54.4 to 52.1, was saying our manufacturers have become significantly less opti-mistic over the past month but on balance still expect growth.
The most important indi-cator, of course, comes from China. There are two different series of PMIs, the official one and one calculated by HSBC and Markit. Both have slacken-ed somewhat in recent months but are still positive. The official indicator, shown in the graph, is currently 52.
The general perception here is that China will succeed in achieving a so-called "soft landing". Instead of growing at a double-digit rate it will shade back and grow at, say, 8%.
Where does this argument lead? Well, there is undoubt-edly some slowing taking place. But this talk of another recession reflects very much an American perspective and maybe in our most gloomy moments, a British one.
Viewed from continental Europe the economic climate remains positive. Viewed from Asia the problem is much more how to slow things enough but not too much. Assuming that the region achieves this transition, that could be really helpful to the rest of us.
So will Asia save the world economy? Yes, in the sense that it will maintain global demand and that will eventually filter through to the rest of us. But yes in a second sense, too, for by growing at a somewhat less helter-skelter pace, Asia will also help reduce pressure on real resources and on inflation.
The key overriding issue is the need for balance. The world can continue to recover only if it corrects the excesses of the previous boom. But the devel-oped world, or at least most of it, needs more time to correct its mistakes. Meanwhile, the main drivers of demand will have to come from elsewhere, and particularly from Asia.