The Wall Street Journal-20080122-A Global Selloff
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A Global Selloff
What was that about "decoupling"? There has been lots of hopeful talk in recent months that European and Asian economies are starting to free themselves from dependence on growth in the U.S. Well, not so fast. Yesterday's rout in global stocks showed once again that as America goes, so goes the rest of the global economy.
While U.S. markets were off for Martin Luther King Day, the world numbers were dismal after last week's U.S. turmoil. Hong Kong's bourse fell 5.5%, its worst day since September 12, 2001. India fell 7.4%, Tokyo 3.9%, Seoul 2.9%, Singapore 6%. Even Shanghai's A-shares market, which often bucks foreign trends thanks to capital controls, slid 5.1%. Europe followed Asia's lead. The DAX, the German blue chip index, plunged 7.2%. London's FTSE closed down 5.5% and the French CAC-40 fell 6.8%. Fears of a U.S. recession appeared to be the common theme.
The economies of Europe and Asia continue to be tightly bound to America's. Taking goods and services together, the European Union and U.S. account for the largest bilateral trade relationship in the world, illustrating their economic interdependence and common risks. Europe's well-developed financial system has already shown it isn't immune to U.S. subprime contagion, which is also contributing to investor jitters.
Yesterday's selloff suggests that Europe and Asia are in for a bumpy ride as the U.S. economy tries to right itself. Traders in those markets apparently don't have any more faith than we do in the "temporary" stimulus packages being discussed in Washington. All the more reason for policy makers to seek their own pro-growth policies, not least by continuing their attempts at tax, labor and financial reform. That's especially true of countries that rely heavily on exports. It's time to focus on policies that can create more domestic prosperity.
