Week 3

The US subprime loan crisis has without doubt effected the global economic situation and I think emerging economics will not be excluded.
Just looking the past of emerging economical crisis in connection with developed economies. For instant the Washington Consensus has been blamed for Argentina’s economic crisis (1999-2002) and also other economic crisis in South America.
Weather they want it or not developed economics crisis cant avoid influence emerging economies.
As US is the world largest importer this has a great impact on worlds exporter which most of them are in emerging countries The US subprime loan crisis reduced the famous American habit to consume.
The consumers became more aware of what they wanted and valued so the market for products with a multi-task function increased. So demand for these types of products increased and this means that in the future emerging economies that export goods to US will have a bigger challenge to fulfil the needs and demand of the Americans. This of course costs money and can be difficult for example an Mexican exporter meet these needs of the consumer.

Positive effects for emerging economies can be the manufactures cost. In a period of economical crisis cost is highly emphasized and to keep these cost down is number one for a manufactory. Manufactories located in countries with developed economies can change their destination for producing to an emerging a country with less costs and a win-win situation for both countries is created.

Looking at over-all impact of sub-prime crisis it is effecting developed economies but emerging economies are particularly sensible. This can be seen if capital flows goes down future investments in emerging countries will be effected.
When developed countries invests in emerging countries investments they get financial help to achieve a certain project. But after the US subprime crisis had an huge effect on the worlds banks there are no money to finance the emerging economies. This can have a negative effect to these countries economies. If they once used to import goods no they might not be able to.

In other hand Americas importance as an global engine can be seen as exaggerated. They have dropped from 19% to 14% in share of worlds imports since 2000. Studies shows that demand within the emerging economies has increased and in China and India added to more to global GDP growth than in America.
The recovery for developed economies I think can be these new giants in the emerged economies that not only will boost growth but also shift relative prices like in oil and the price of the dollar for example. This could mean less desirable consequences for developed economies like US.
I think because emerging economies has the capacity to grow faster and therefore are gaining on Americas recession.
Looking at the stock markets of emerging economics showing that they have climbed steeply.
There is always two sides to a story but in the overall picture I believe the emerging countries gains on the recession of developed economies which keeps the recession alive.

Sofia Gustafsson