Is the U.S. housing blowout going to hurt the rest of the world? Certainly, a major slowdown in the planet's biggest economy would cause some countries pain. But much of the globe will likely shrug off the worst effects of any American slump. "The global economy is no longer U.S.-centric," says Ed Yardeni, an economist who heads Yardeni Research in New York. "We may find that the global economic boom continues, notwithstanding the slowdown in the U.S."
One big reason is that emerging markets are stronger than during past crises. From China to the Persian Gulf, countries have taken advantage of their recent vigor to gird themselves for tougher times, paying down foreign debt and building up huge piles of cash reserves. "They are much better prepared to face external shocks," says Maria-Laura Lanzeni, head of emerging markets at Deutsche Bank in Frankfurt.
What's more, these economies are now firing on all cylinders. As consumers stock up on everything from cell phones to cars, the so-called BRIC countries—Brazil, Russia, India, and China—are contributing more to growth in global consumption than the U.S., says Goldman Sachs (GS) economist Jim O'Neill. And businesses there are bulking up. That's good news for Japan and South Korea, which are supplying steel, heavy equipment, and construction services to their fast-growing Asian neighbors. "With China building steel mills and petrochemical plants, we are inundated with orders," says Kim Jung Gwee, vice-president for marketing at Hyundai Heavy Industries Co. in Seoul.
Europe, too, has benefited as buyers in Asia and the Middle East snap up the Old World's snazzy cars and sophisticated machine tools. This should help buffer European countries from the effects of tighter credit and flagging U.S. sales. "I don't see any indication that the economic dynamics of Europe will be hampered by the U.S.," says DaimlerChrysler (DAI) Chief Executive Dieter Zetsche.
Of course, a lot hinges on how long and deep any U.S. downturn proves to be. It's hard to imagine that the global economy could sustain growth of 5%-plus if the U.S. were to enter a prolonged swoon. "India may not be as export-dependent [as China], but it depends on the smooth running of the global economy," says Anand G. Mahindra, chief executive of Mahindra & Mahindra Ltd., a $4.5 billion Indian manufacturer of cars and tractors. "For that, the U.S. needs to be stable."
Robust growth in the rest of the world may prove to be a boon for America, too. Some of the negative impact from the housing recession is being offset by surging U.S. exports and strong growth in overseas earnings for American companies. (A record 29% of U.S. corporate profits come from abroad, compared with around 20% at the beginning of the decade, Yardeni figures.) This could be one instance where America's diminishing role in the world may not prove to be such a bad thing after all.