The result for Asia and much of the emerging world is a period of hyper-convergence, where naturally higher growth rates (due to favourable demographics, low intensity of capital and the ability to leapfrog technology generations) are magnified and propelled even higher by a powerful low interest rate shock. Essentially, negative or very low real interest rates lift naturally high growth rates even higher, creating a virtuous cycle of hyper growth and convergence.

Since the onset of the global recovery, many emerging markets are exhibiting hyper growth rates. Retail sales are typically increasing at a double digit pace, often as fast as 20%. The ultra low interest rates are also magnifying investment cycles with capital expenditure increasing by roughly 20% in key markets (see Chart 2).

In the world of hyper-convergence, 'intraemerging' trade has emerged as a valuable buffer from the secular decline in G4 demand. There has been a big step up in China's exports to other emerging markets - a pattern widely seen across all emerging markets, where the intra-emerging market trade is becoming a new source of demand (see chart 3). Again in China, this year, net exports are expected to contribute negatively to GDP growth and we expect the economy to rebalance away from exports towards domestic demand driven by urbanisation and infrastructure investment. This trend is likely to be more and more prevalent across other emerging markets as well.

Hyper-convergence is not trouble free - it also brings with it growing pains in the form of unsustainable increases in asset prices, domestic wages and inflation. There are rebalancing mechanisms: emerging markets can allow their currencies to appreciate and arrest the speed of convergence. However, most policy makers appear addicted to cheap pegs and their accompanying gargantuan current account surpluses, so the most likely outcome is unsustainable, fast emerging world growth, accompanied by asset/price inflation. The lop-sided twospeed world economy of the past year is likely to become even more so in the months and years ahead.