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America Leads the Way as Emerging Nations Like China Fade

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The U.S., Japan and Europe are back on top as the drivers of the global economy, unseating the emerging world led by China, India and Brazil.

Related: U.S. Economy on Solid Ground but Risks Remain: David Rosenberg

For the first time since mid-2007, the developed world accounts for more growth in the $74 trillion global economy than the developing world, according to a Wall Street Journal story today, citing Bridgewater Associates, one of the world’s biggest hedge funds.

“We’re back to the days at least for the moment when the U.S., as in the 1990s and early 2000s. really was the default growth engine of the world,” says Michael Santoli, senior columnist at Yahoo! Finance. But U.S. growth, along with that of other developed economies won’t return to the 4-5% annual rate of previous recoveries, says Santoli.

Related: Here's What Really Went Wrong for Investors in Emerging Markets

In the latest readings, the U.S. economy grew at an annual 1.7% while Japan’s economy advanced at 2.6% — slower than the first quarter but positive for the second quarter in a row. And later this week, the 17-member euro-area is expected to report its first quarterly growth in a year and a half, marking the end of the European recession.

A Bloomberg survey of economists forecasts a median 0.2% growth in the euro-area for the second quarter, with Germany leading the group at 0.7% growth—nothing staggering but positive nonetheless. Even Greece recently reported a budget surplus though growth was still negative in the first quarter.

The developed world economies have been helped by aggressive easing policies of central banks like the Fed, ECB and the Bank of Japan, while rising inflation in emerging economies have constrained the policies of their central banks.

And the financial markets have noticed. The S&P 500 has outperformed the emerging market benchmark by 50 percentage points over the last two years, says Santoli.

Related: 'False Reocvery' vs. 'Decline of Failure': The Great Economic Debate

Still, in the long run these developed and emerging world economies are inextricably linked through global trade and investment. And “longer term the emerging economies are going to have to pick up their share of global growth,“ says Santoli.

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