Effect of US on the Global Economy

The world economies are cross linked because of the globalization that has happened all over the world. Moreover America is at the nucleus of Globalization and any change to its economy has a direct effect to the world economy. The recovery of US from 2008 crisis is now hampering the world economies at different levels.

US accounts for 8.56% of world total exports, but it’s not the exports that we should be concerned about , it’s the imports that are the worrying factors. US is the largest importer in the world and now its import have come down significantly which is attributed to the fact that it has discovered rich reserves of shale gas. US was before heavily dependent on energy resources coming from other countries but this discovery has made it self-sufficient. Hence , the fund that has been freed by this is being invested back in the US to give thrust to the local manufacturing industries.
A 1 percent point pickup in US GDP growth typically meant a 0.4 point spillover for the rest of the world. So, another major reason leading to the worldwide slowdown is attributed to the fact that US FED is withdrawing the monetary stimulus on accounts of picking up of the US economy and as a result the exchange rates have been hampered all over the world.  FII investors are also withdrawing money from the emerging markets now as a result.

Strengthening of US equity markets would result in greater investments in US and in return shielding it from currency rate fluctuations. Another side of the coin is , India and US share a healthy trade relationship  and if the demand would increase in US this would mean increase in India’s export and if America recovers it would create a whole lot of job opportunities. This is would depreciate the current account deficit of India.  Also, with time if the domestic demand is met by domestic production in US then it would reduce its dependence on foreign markets which would result in favorable Return on total assets.
Domestic firms rather than going for acquisitions abroad would now look to invest money and capital in the US economy which would result in increased FDI inflow in the country. Well all these things also depend upon the type of policies that are being drafted by the government is US.
 

The conclusion that comes out is even if the situation worldwide is not at its best but one thing is sure that it would not lead to other parallel crisis.