A tale of two worlds

It used to be said that ‘if the US sneezes, the rest of the world will catch a cold’. Well, the US is certainly sneezing as a result of its subprime financial crisis, but the rest of the world doesn’t seem to be taking too much notice, as least so far.

As Bloomberg comments overnight, ‘Central bankers from Santiago to Seoul are raising interest rates to fight inflation’. And it goes on to note that US investors are out of step in clamouring for interest rate reductions. China, for example, raised rates this week for the fourth time, after inflation surged to a five year high.

Australia, Chile, Norway, South Africa and South Korea are others who have increased recently, citing concerns that strong growth will continue to push up food and energy prices. Whilst the ECB reaffirmed yesterday that it still expects to raise European rates early next month.

Developments in Asian financial markets have also been particularly interesting this week. These have come a long way since the 1997 crisis, as I noted from Bangkok in June on the anniversary of the Thai baht’s collapse. And China’s move on Monday to free up overseas investment opportunities for its citizens is perhaps a particularly important statement of its future intentions.

China helped to protect the region in 1997 by refusing to devalue. Now it is signalling a readiness to protect it once again, by allowing Chinese investment funds to replace any money repatriated from Asia to the USA as a result of the current financial crisis there.

When we look back on the events of 2007, this major initiative may well be seen as being one of its key developments.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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