Debt dividing world as global economies decouple

Debt, and not geography, is now dividing the modern-day world as old definitions between developed and developing nations no longer provide an adequate sense of the changes the global financial crisis has brought about, claims Jonathan Pain.

According to The Pain Report, "submerging" nations such as Britain, Dubai, Japan and the US face a new reality as changing economic conditions force them to spend less and save more. In contrast, emerging nations such as China, India and Brazil will all spend more and save less, creating a decoupling effect that many economists have failed to acknowledge.

Pain added that China, as it overtakes Germany as the world’s largest exporting nation and replaces Japan as the second largest economy, is heading for a prosperous decade as its government looks to rebalance its economy through extraordinary investment in roads and railways. But Pain warns that no country can be viewed in isolation and that America will continue to play a significant role.

“In an age of globalisation, no nation can be viewed in isolation and the American consumer will remain an important customer — but the citizens of Wuhan and the like will become as important, if not more,” Pain said.

One of the challenges, admits Pain, is whether the shopping habits of India, China and the rest of the emerging nations will be sufficient enough to offset the stagnation in household consumption in the submerging nations. Another challenge is the fact that the debt faced by the submerging world still remains, with private sector debt simply being swapped for public sector debt — an indication of stagnation in the future.

Pain adds: “We are witnessing a profound and seismic rebalancing of the global economy and I think this is all healthy and inevitable. The Greeks have borrowed too much, as have the Americans and so too Dubai — and they will have to pay it back.”