Economic recovery in 2010

In the past history of economic downturns whenever Western economies had hiccups the development world reacted with deep declines, political unrest and much longer recovery. This time it looks like we are in an uncharted territory because the tables have turned.

Looking at the old paradigm the economies of Brazil, China, India, Indonesia, Mexico were very likely to suffer significantly from the downturn of 2008 because of their tight relationships with the West. Most indicators recorded dramatic drop in orders and import. In many examples such as this article by the New York Times reporting on the closure of 67000 factories in China, in Q3 2008 the despair was spreading quickly. Going into 2009 most of the forecasts were doom and gloom.

Fast forward to today.  Due to unprecedented measures taken by the central banks of the US, EU, China and others to stimulate the economy the situation in emerging markets actually looks more promising that in most of their western counterparts. Countries that were looked as economic disasters in the end of 2008 turned to be a gold-rush in the end of 2009. The Institute of International Finance (IIF) forecasts capital significant increase of capital influx to the emerging markets in 2010.

Even more amazing is the political stability throughout this period. Two governments of Lithuania and Island became the only victims. Both India and Indonesia held national elections during this period. Countries with the highest populations, China and India, merely went through a slowdown of their growth while Brazil and Indonesia went through a slump of economic activity but came back.

In comparison to the Asian crisis of 1997-98 that created a wave of instability, financial collapse or Russian Ruble, default of Argentina, this time it looks very different. Based on the stock exchange numbers by Thomson Reuters Brazil is up 149% in 2009, China 125%, India 88% and Indonesia 114%. According to IIF US GDP growth was 5% in Q4 2009. Let’s hope that 2010 will confirm these trends with real recovery.