'Decoupling' Debunked as U.S. Collapse Infects World (Simon Kennedy)

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By Simon Kennedy

Dec. 7 (Bloomberg) -- It turns out the U.S. economy matters after all.

The credit collapse and dollar decline that followed a surge in U.S. home foreclosures jeopardize expansions in the U.K., Canada and Germany, economists said. They also debunk ``decoupling,'' an argument advanced by analysts at Goldman Sachs Group Inc. and Morgan Stanley that the world wouldn't suffer as it did during U.S. slowdowns in previous decades.

The Bank of England and Bank of Canada this week followed the Federal Reserve in cutting interest rates, and the European Central Bank lowered its growth forecast for next year. British policy makers reduced their benchmark rate yesterday, even after Governor Mervyn King expressed concern about inflation just two weeks earlier.

``Two thousand and eight will be the year of `recoupling','' said Peter Berezin, an economist at Goldman in New York, explaining his firm's about-face. ``What began as a U.S.-specific shock is morphing into a global shock.''

Of the 38 countries they monitor, Goldman economists expect growth to slacken in 26 and strengthen in a dozen. That will cause global growth to slow to 4 percent next year from 4.7 percent this year, with Europe and Japan fading faster than the U.S., they say.