Economic recovery - Global Imbalance is reducing?

During 2010, where emerging economies clocked 7% growth rate, developed countries grew by mere 2.8%. This glaring disparity has already had some important consequences for the global economy like dollar's status is under threat and there is a big question mark on the viability of monetary union.

Leading emerging economies are set to acquire more enhanced role in the International Monetary Fund (IMF) as it is being reorganized. The G20 has replaced the G8 as the world's leading economic grouping.

One of the rationale behind the divergence in this growth rate is that developing countries will obviously grow faster than their counterparts as they start from a low base and can post greater productivity gains.

What is surprising is the wide margin by which developed countries trail the developing ones. Their decline in the downturn was so sharp that their rebound should have been much stronger. Two important developments can explain why this has not happened:

1. Both individuals and government in developing world are reeling under an extraordinarily high level of indebtedness. Consumer spending is less and governments are forced to go for austerity and to enforce some tight measures which are not very good for the overall growth.
2. Financial sector of the developed countries remains impaired and credit flows have not increased to the desired extent. 

Contrary to this, developing countries are seeing a strong domestic demand which is fostering their growth such that in 2010, they accounted for almost half of the global growth.