The Case Against Decoupling

Many pundits have argued that foreign markets would remain strong during a US slowdown due to a decoupling of markets traditionally dependent on the US for growth. Nouriel Roubini take the opposite tack on his blog post "Global Recoupling Rather than Decoupling as the US heads toward a Recession":

For now it is clear that it is still the case that when the US sneezes the rest of the world gets the cold. And since the US will not just sneeze but is risking a serious case of protracted and severe pneumonia the rest of the world should start to worry about a serious viral contagion from this US sickness. Certainly credit and financial markets have already suffered from such contagion; the dollar weakness is sending shivers to non-US investors, policy makers and exporters; and daily shocks to US equities are transmitted to Asia and Europe. It will take only a little longer – once the US consumer falters – for the US real hard landing to affect the growth rate of Europe, Asia and emerging market economies. There was never real decoupling; the perceived “decoupling” was only a side effect of the modest slowdown of US growth; now that the slowdown is turning into a hard landing contagion and recoupling is reestablishing itself with a vengeance.