How have developing economies managed to bounce back so sharply over recent months?
As in the advanced world, part of the improvement in growth in the developing economies reflects a moderation in the pace of inventory liquidation. More fundamentally, however, it also reflects an improvement in global trade. With the world economy over the worst of the credit crisis, global trade flows appear to have bottomed out. For example, the Baltic Dry Freight Index – an index of shipping costs – has risen more than four-fold since the end of 2008, one of a number of key indicators suggesting that global trade is now starting to turn higher. Since developing economies tend to derive a disproportionate share of their national income from exports, early signs of a recovery in world demand tend to show up first in improvements in developing world GDP. It is not only inventories and the turn in the world trade cycle, however, that have boosted developing economies in recent months. There are also signs that domestic demand conditions in some of these economies are improving, underpi
