The balance of economic and financial power is shifting from developed economies in the West to emerging economies, led by China and India, and including commodity producers such as Brazil and Russia, and countries in Asia and the Middle East with large savings.

The recent global economic boom already reflects this, with emerging economies not only growing strongly but heavily influencing conditions in the West. Cheap goods from China, often produced by Western firms, helped to keep global inflation down ahead of the recent surge in commodity prices, and savings flowed ‘uphill’ from Asia and the Middle East to the US, allowing that country to live beyond its means, as seen by its huge trade deficit.

These imbalances are unwinding and, along with the credit crunch, point to a painful adjustment for the West. The UK faces recession and needs to resolve many issues, not least how to position itself in this changing global landscape.\

 

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