In a rapidly globalising world, the decoupling theory was never totally persuasive; given the evidence of the last few months – capital flow reversals, sharp widening of spreads on sovereign and corporate debt, and abrupt currency depreciations – the decoupling theory has almost completely lost credibility.
Growth prospects of emerging economies have most definitively been undermined by the ongoing crisis with, of course, considerable variations across countries. The IMF revised its growth forecast for emerging economies for 2009 from its early October figure of 6.1 per cent to 5.1 per cent. Clearly emerging economies have a painful adjustment to make.