Extracted from Rupinder Singh's blog:
Rupinder is SENIOR ECONOMIST, STRATEGIST & ADVISOR at EM Govts, IFIs
When I was a kid growing up in north-west London, there was a popular rhyme I recall at primary school …Hungary was hungry, ate Turkey, slipped on Greece and broke…China.
Needless to say with such a aposite upbringing, it was perhaps no surprise to folk, that I became a big fan of developing-cum-transition economics and economies!
There is something prescient however about such a cross-country linkage for these emerging economies because in many ways it describes lucidly the increasing connectivity that exists between economies and across regions – a trend that has accelerated in the post WWII era. The collapse of communism ushered a wave of wannabee free marketers from Tallinn to Beijing and an outcome what others such as Thomas Friedman have have ascribed as a 'flattening of the world'.
These transition economies have tried to “converge” with developed economies – be it in terms per capita incomes, human development indices or simply put to aspire to similar quality of life. Those that entered EU have had to jump hoops to comply with the EU’s entry requirements…and those on the periphery …from the Western Balkans that are formally in queue with Croatia now granted an entry ticket in 2013…to a ring of countries that form the “External Neighbourhood” from Morocco around the Med to Egypt, taking in Jordan and Syria and then into the Caucuses and up through Ukraine and Belarus….
Apples and oranges? Yes maybe..
It also leaves out Russia and the ‘stans in the former Soviet Union which I'lll have a stab at here.
That said, the above-stated interlinkages are still playing out – be it the asset bubbles that have mushroomed within the EU that allowed free movements of capital but without genuine prior structural convergence OR macro imbalances regionally as China followed a mercantilist route to growth, exporting to the West and then parking the receipts to finance the balance of payments deficits back in the West that had bought its exports…ostensibly the US.
…Or the impact of the entry of the transition economies’ entry into the global economy in terms an initial deflationary force that kept down global inflation and which is now reversing as the growing masses in these emerging economies raise their demand for resources, toys and gadgets..
1. Lets start with mother Russia: a country, language and people I know… forget about the is it 3 or 4% growth and the central bank's would-be new inflation targets....expect status quo with the hydrocarbon sector continue to drive growth and revenue flows on the budget…even if global demand for oil declines in the short term due to an unexpected confluence of slowdown across different geographies, volatility in the Arab theatre will keep prices fizzling over the medium term….anything over US80/barrel and the Russian elite is happy… and as already clear in the last couple of days uncertainty in the oil markets will help the rouble and help the regime to raise current expenditure.