International finance has long been based on the premise that what’s good for one country is good for the world, because increased trade benefits everyone. But according to a special report from Natixis, that may no longer be the case as economic growth moves from foreign trade to domestic services.

Looking at year-on-year GDP growth, the report finds that there has been a strong correlation between different countries and different regions. The correlations weren’t uniform – China and India were strongly correlated to each other but weakly correlated with the rest of the world – but there has been a clear, positive connection going back to at least the early 90s. For most people, this seems obvious. As a country becomes wealthier it is able to import more goods, driving foreign economies in the process, while if a major economic region like the U.S. or the Eurozone tanks then economies on the periphery are going to suffer as well.

Economic growth Real GDP Growth Comparison

Economic growth: But that correlation appears to have broken down

“Growth has become more domestic, driven by the sectors of non-traded goods and services,” the report explains. “For example, growth in China is increasingly due to the construction sector; US economic growth is due to residential construction and services. So economic growth no longer spreads from one country to the next via foreign trade.” And it’s not just speculation. Natixis went looking for correlations between countries, even if they were new correlations that hadn’t existed a decade ago, and they found exactly one positive correlation between oil exporters and emerging markets. Everywhere else the strategy of mutual growth through free trade seems to have hit a snag.

imports in value terms

World exports and GDP

‘Untradeable’ growth could force economies to directly compete

Of course the world hasn’t become disconnected, what happens in the U.S. still affects Europe and vice versa, but Natixis argues that this connection has been turned on its head. “An upswing in economic growth in a large country leads to a rise in this country’s long-term interest rates, which can be seen clearly in the United States,” the report states. “This rise in interest rates is spreading to other countries (except China and Russia), curbing growth in these countries. There has therefore been a change in the sign of the transmission of real shocks between countries.”

It’s not that this dynamic is new, rapid economic growth led to rising interest in the past as well, but the effect used to be drowned out by the impact of international trade. If it’s true that international trade is stagnant, but economic growth in the U.S. or the Eurozone increases interest rates elsewhere, countries may find themselves in the uncomfortable position of hoping the rest of the world stumbles so that they can get ahead.