By Vidhan Rana

The financial crisis of 2008 is the world’s first true economic crisis. Never before have the world’s economies been so intertwined, nor have the all world’s citizens felt economic fear on such a scale. Even after the United States’ $700-billion economic-rescue package has passed, along with a volley of other financial packages from governments in Europe and Asia, the future of the world economy remains uncertain.

Over the last decade or so, the world’s economic growth was led by emerging economies such as China, India and Brazil. Now that global demand is declining as a result of the financial crisis, these emerging economies are having a hard time selling their products on world markets. On October 20th, China’s National Bureau of Statistics announced that its growth slowed to a rate of 9% year-on-year in the third quarter of 2008. A heady number by Western standards, the 9% growth rate is the lowest for China since 2003. This month, two big Chinese companies, Smart Union Group, a toymaker, and FerroChina, a steel producer, went into bankruptcy. Singapore-listed FerroChina could not garner enough cash to repay its working capital loans. Analysts in Asia maintained an outperform rating on the company’s stock just a week before its collapse. Analysts are now frantically checking the books of other publicly-listed Chinese companies for warning signs.

China’s fast economic growth caused major shortages of labor, mainly in the industrial southeastern part of the country. Now, for the first time in years, there are actually labor surpluses as manufacturing plants lay off workers by the hundreds. Both falling demands for its exports and the tight credit market are to be blamed. Americans and Europeans are not buying Chinese exports as voraciously as they were in the early parts of this decade.

India is facing its own problems. Last week state-owned Air India announced a plan to give 3-5 years leave without pay to about 15,000 of its staff. The country’s leading private carrier, Jet Airways, laid off 1,900 employees in a similar move earlier this month. After growing at a record pace of 9.3% in 2007, the country’s economic growth rate is expected to slow down to 7.9% in 2008 and further down to 6.9% for 2009, according to International Monetary Fund projections. The banking sector, however, appears stable. None of the banks have gone bust so far. Kamal Nath, India’s commerce minister, pointed to the country’s stricter financial norms for the relative stability in its financial markets.

India’s strongest export sector, the information technology industry, has fared relatively well in these difficult times. The Indian Rupee’s falling exchange rate versus the US dollar has kept the sector’s pricing lower in the US and European markets. Som Mittal, the president of National Association of Software and Services Companies (Nasscom), reported that though the growth of IT companies has slowed, many are still expected to hire more employees in the coming quarter. The industry is now looking to new markets like Japan, where the ageing population is causing an acute labor shortage.

Brazil seems to be faring best among these three emerging economies. Since 1995, all of Brazil’s banks have complied with an 11% capital requirement, whereas the US capital requirement, based on the Federal Deposit Insurance Act, is just 4%. Brazil has also benefited from historically high commodity prices during the last four years. Nearly half of the country’s exports are commodities. Though commodity prices are finally declining from their historical highs, the effect is yet to be felt in Brazil.

One of Brazil’s most successful corporations, Embraer, is the world’s largest manufacturer of commercial jets in the world. So far the company has not announced any major layoffs. Its backlogged order book has ensured that the company’s business will remain strong well into 2009. However, an executive at the firm recently said that the company is concerned about the developments in the financial world. With over $200 billion in reserves and a diversified foreign trade (15% with the United States and 20% with the European Union), the country’s leaders seem confident that they can pass through this financial turmoil with just minor bruises.

Today, the developing world seems more confident about its economic future than the developed world. China, India and Brazil’s economies are definitely slowing down, but they are certainly not going into recession. In some sense, a slowdown may just help China, as it was already worried that its economy could overheat due to uncontrolled economic growth. The slowdown is also bringing world food prices down, which may bring relief to millions of people living at the edge of poverty.