Payback Time for the US

08/04/2009 9:44 am EST

Focus: MARKETS

Michael Brush

Columnist, MSN Money

Michael Brush, contributor to MSN Money, says Americans made a huge investment in emerging markets by buying their products, and now they’re set to buy more of ours.

[For years,] US consumers were making a huge investment in the economies of emerging-world countries as we purchased their stuff. Now that investment should pay off.

Emerging economies are starting to truly emerge as economic powerhouses, with some already casting off the global recession and posting strong growth.

This will help the US bounce back, as a world of new consumers starts buying our stuff, nudging the US back to "normal" growth of 3% to 3.5% per year sooner than many people expect, says James Paulsen, an economist and market strategist with Wells Fargo.

And that is how the "investments" made by US consumers will pay off. Our spending helped them build up industries, creating jobs and consumers—who now can turn around and buy from us.

The US is starting to benefit from an unofficial Marshall Plan set in motion by US consumers over the past 15 years, Paulsen believes. As US consumers binged, a lot of what they bought came from factories in China, India, Indonesia, Vietnam, and other emerging-world countries. During this time, the US ran trade deficits of about $650 billion a year, Paulsen estimates.

That money helped emerging-market nations build out their infrastructure. It paid the salaries that fueled the growth of now-thriving middle classes.

In China, about 400 million people have risen above poverty since the late 1970s. And 150 million of them now have manufacturing jobs—a group nearly the size of the entire US work force, says Fred Fraenkel, the chairman of investment policy for Beacon Trust. An additional 200 million Chinese should rise above poverty in the next five to 10 years, he estimates. The size of the middle class has likewise been rising dramatically throughout the developing world.

Developing economies accounted for 45% of world GDP last year, up from 37% in 2000, says Cristina Panait, of investment firm Payden & Rygel. Developing countries bought 35% of the $1.3 trillion worth of US exports in 2008, according to Franklin Vargo of the National Association of Manufacturers. That's up from 25% in 1990. China was the largest, with $70 billion in purchases, followed by Brazil, Singapore, and Taiwan. They buy agricultural products but also significant amounts of manufactured goods.

Purchases of US products should continue to rise. Emerging economies are showing robust growth. The International Monetary Fund projects emerging economies will grow by 4.7% next year, with China and India leading the way at 8.5% and 6.5%.

"We're convinced that the emerging markets are going to lead the way out of the recession," Panait says.

By themselves, emerging economies can't lift the world out of the doldrums. But rising demand in emerging nations will help get the US back to normal growth sooner than many people expect, Paulsen says.

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