Good morning, Quartz readers!
You could count on the emerging markets: A solid decade of export-driven growth (rising commodity prices and booming populations didn’t hurt) stood in fine contrast to the housing bubble and sovereign debt troubles plaguing wealthy countries with aging workforces and rising inequality. Now the great rebalancing might be upon us—and at the worst possible time.
This week, forecasts of global growth confirmed that wealthy nations are getting healthier, while emerging markets are catching cold. The United States saw a raft of good data, including expansions in services and manufacturing; Europe clawed its way out of recession on the back of manufacturing growth, mainly in Germany; the UK’s economy is soaring. Japan’s massive stimulus efforts have it looking at growth and perhaps the end of deflation.
All this raises expectations that the advanced economies, especially the US, will begin tightening monetary policy. That has foreign capital flooding out of the emerging markets where investors sought precious yield. The BRICS are passing the hat in an attempt to ward off currency devaluation, but commodity prices are falling—and don’t they now wish they’d done those long-postponed structural reforms?
But don’t rely on the advanced economies to pick up the global slack. Friday’s superficially impressive US jobs report showed too many people leaving the labor force and not enough new jobs created. Germany’s famed competitiveness has more to do with low wages than investments in workers or capital, and the rest of the European recovery is better described as stumbling than striding. Meanwhile, emerging markets spent most of the recent G20 summit (when they weren’t lambasting the US over NSA surveillance or rejecting strikes on Syria) asking the rich world to take it easy on the tightening. It might be better off for all involved if they listened.—Tim Fernholz
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