U.S. woes still tug on world economies

Turkey, another prominent emerging market that's enjoyed several years of robust development, also seems likely to slow somewhat from last year's 5% growth rate. Ferit Sahenk, chairman of Dogus Group, one of the country's largest family-owned conglomerates, worries that the U.S. crisis will depress the European economy, a key export market. But he says Turkey's strong fundamentals and its attractiveness to foreign direct investment will help the country ride out the crisis.

"Everybody is talking about whether the U.S. is going into recession. … If the U.S. sneezes, people are apt to get some sort of a cold," says Sahenk, whose business partners include General Electric ge and Volkswagen.

Still the biggest

One measure of the maturation of the emerging world is the near-doubling since 2000 in consumer expenditures in the so-called Bric countries: Brazil, Russia, India and China. In 2006, the most recent data available, consumers in those four nations spent $2.6 trillion, up from $1.4 trillion in 2000.

That's a sizable chunk of spending, but it pales alongside the free-spending ways of much wealthier American shoppers. In 2006, U.S. consumers spent almost $9.3 trillion, according to Bank of America bac. If a deep U.S. recession causes consumers here to retrench, developing world consumers won't be able to pick up the slack.

"The near-term outlook for global equities remains closely tied to the health of the U.S. economy," Joseph Quinlan, Bank of America's chief market strategist, wrote to clients last week.

The IMF, in fact, says in Tuesday's updated forecast that the "main risk" to the global economy is that financial market turmoil will ultimately weaken the emerging markets that have held up well to date. And in an e-mail interview, Martin Redrado, Argentina's central bank governor, frets that "a further worsening of the U.S. economy will have an effect on financing conditions for the region and thus for its prospects for continued economic growth."

While its financial footprint may have shrunk a bit in recent years relative to the fast-rising emerging economies, the USA remains the single biggest player in global markets. U.S.-listed stocks account for 44% of world equity value, according to Russell Investments. U.S. Treasury securities make up almost half of total government bond values worldwide, says Stephen Jen, chief currency economist at Morgan Stanley in London. And a recent study by Russell Investments concluded that since 2001, stock markets in the USA and the developing world more often than not moved in lockstep.

The bottom line is that problems in U.S. markets are felt quickly elsewhere. When investors here suffer losses and need to raise cash, they often do it by selling shares in Asia, Latin America or Europe.

"In terms of financial markets," says Jen, "the U.S. is still the benchmark for the rest of the world."

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