Developed and emerging markets

The gap between emerging markets and developed market growth is tightening. This has occurred through improvement in the EU and a struggling set of EM countries who have current account deficits. What was considered an emerging market miracle may have been something more temporary. With the EU starting to come out of a recession and some stronger growth in Japan during the first three quarters of last year, we are seeing not the death of the developed world but something that is moving closer to trend or rotation.

2014 global growth may be driven by the developed world as growth leaders and emerging markets as followers. This is the core story for what is going on with sell-off in emerging markets. While there has a vast improvement in intra-country growth and south-to-south trade, the global trade environment is still driven by North-South trade and North-South capital flows.