(FORTUNE Magazine) – Nearly lost in all the dire headlines--Mexican peso collapses! economic aftershocks of japan quake! u.s.-china trade war looms!--is 1995's Big Event: the beginnings of a global expansion of breathtaking proportions where developing countries, not the usual elite club of rich nations, head the charge. As the chart shows, the 16 largest such economies will average an estimated 6% annual growth in GDP through 1996, more than double the rate of the mature economies of North America, Japan, and Europe. Says economist Miron Mushkat of Lehman Brothers in Hong Kong: "The developing economies are beginning to assume a leadership role as a driver of global growth."

Even more epochal, this enormous shift is taking place in a post-Cold War world where the players compete in economic contests rather than ideological ones. For mature economies, the big opportunity is in riding these winds of change. By becoming more competitive, they can boost exports, create more jobs for themselves, and assure a prosperous future. The U.S. economic rally, an early arrival at the planetary growth party, could even surpass the record expansion of the 1980s.

Risks abound, of course. International investors are understandably nervous of developing economies, particularly after Mexico. And central bankers dread inflation and have their hand perpetually poised over the lever that hikes interest rates. But for all this, the worldwide boom is likely to prove exceptionally durable. For one thing, previous expansions have seen nations advance--and then tumble--in lock step. This time around, the world's business cycles are more independent of one another. Witness the unilateral timetables that the U.S., Europe, and Japan have followed out of their most recent recessions. Now watch how countries in Asia, East Europe, and Latin America--many of them embracing free markets for the first time--compete as scrappy individuals that can win or lose regardless of other economies.

All this vibrant, self-sustaining growth could keep the more mature economies cooking with increased demand for their products, just as the U.S. benefited from the reconstruction of war-wrecked Europe and Japan in the 1950s and 1960s. But the timing of the 1990s boom catches the traditionally elite waist-deep in sweeping technological and organizational change. The challenge in these countries, says Robert Hormats, vice chairman of Goldman Sachs (International), will be to preserve their competitive edge amid a frenzy unleashed by the worldwide ratcheting up of both supply and demand.

Call it the Restructuring Recovery. New rivals surfacing from every point of the compass are putting heat on manufacturers throughout the U.S., Europe, and Japan to step up investment in their search for efficiencies. In the U.S., for example, gross capital spending on new plant, equipment, and office technologies increased at a near-record rate of 12.5% in 1993 and in 1994. The Organization for Economic Cooperation and Development (OECD), the economic research agency in Paris, forecasts that such investment will continue to increase in 1995 and yet again, for an unprecedented fifth consecutive year, in 1996. In the European Community, capital spending will rise some 6% in 1995 and 8% in 1996 as manufacturers try to close a widening competitiveness gap with the U.S. and Japan. The estimated $60 billion repair bill for the Kobe quake is sure to increase Japan's spending over the previously forecast 1.4% in 1995 and 4.1% in 1996.

Soaring investment is already yielding hefty dividends. Flexible automation equipment that improves quality and efficiency in U.S. factories is boosting productivity and helping to fuel profits. Similar benefits are showing up elsewhere. In Germany, for example, labor productivity in manufacturing jumped 7.5% during 1994, while unit labor costs should nudge up this year by a mere 0.1%.

Also paying off bigtime: capital spending for computerized inventory-tracking technology and the just-in-time management techniques it makes possible. Manufacturers around the world are reducing dramatically the costly stockpiling of raw materials and intermediate products. This contrasts with the early phases of past recoveries, when inventory building accounted for as much as half of total GDP growth. In their race to acquire the materials they'd need to fill anticipated orders, producers would bid up prices and thus light the fuse that ignited inflation.

But now that pattern appears to be ending. A recent OECD study has found that inventory accumulation in Germany accounted for about 22% of the total growth that brought the country out of its recession trough last year, compared with some 44% in the recovery of the early 1980s. In Japan's nascent recovery, stock building is adding just over 6% to total growth, vs. 15% in the 1983 upswing. And in the U.S., manufacturers reduced inventories by some 14% in early 1992. This compares with an inventory accumulation that accounted for more than 43% of total growth coming out of the 1982 recession. In the current expansion, these tighter disciplines have partly quelled the war between growth and inflation. Says Woody Brock, who heads the Strategic Economic Decisions consulting firm in Menlo Park, California: "Instead of 2.5% growth and 4% inflation, we're seeing 4% growth and 2.7% inflation."

Continued steady, low-inflation expansion should be all the more sustainable because of the degree to which the global recoveries are out of sync. In the four preceding business cycles, says Victor Zarnowitz, director of the Center for International Business Cycle Research at Columbia University, the economies of all the eight largest industrial nations, including those of the U.S., Germany, and Japan, fell and rose in tandem. But, that lock-step bust-and-boom tradition was shattered in the latest downturn. The U.S. slid into its recession in the summer of 1990. But the economies of Europe and Japan didn't even dip until mid-1992, nearly a year after the U.S. had begun its upswing. The decoupling, says John Lipsky, chief international economist for Salomon Brothers in New York City, should slow the buildup of potential excesses that set off inflation--and that invite central banks to increase interest rates, dousing growth.

An unusual dampener for U.S. inflation last year was its $200 billion trade deficit. Lipsky estimates that this import surplus knocked about half a percentage point off GDP growth, holding it to a less inflationary 4% rate while helping to reignite recoveries abroad among the country's trading partners. Now, as U.S. growth slows and demand for imports cools, the accelerating expansions of Europe and Japan will stimulate demand for American goods.

Meanwhile, the prospect of an extended period of balanced growth in which exports play a more prominent role is giving major cyclical U.S. industries a chance to strut their regained competitiveness. Chemical manufacturers, America's largest exporters, put themselves through a decade of painful downsizing, and the gradual resumption of demand abroad will lift industry profits. Paul Raman, an analyst with the New York investment firm S.G. Warburg, expects that the 20% unit-cost advantage enjoyed by U.S. chemical companies over their European and Japanese competitors should enable the Americans to gain market share.

Raman estimates that U.S. chemical producers will see a 5% increase in net profits for each 1% increase in production volumes. The industry is already looking great. It had an outstanding 1994, when profits jumped between 30% and 40% on a 7% growth in domestic sales. Raman thinks that an easing of U.S. growth in 1995 and 1996 will be more than offset by the 5% increase in demand he's forecasting from Europe. That, he says, should let chemical manufacturers maintain production capacity through 1996 at a profitably high 90%.

Growing confidence that global growth will extend the life of the current U.S. expansion is encouraging some cycle-sensitive manufacturers to stretch out their planning horizons. Case in point: Detroit's reinvigorated automakers. Steady, moderate growth, points out Chrysler's chief economist W. Van Bussmann, will minimize the dislocations of the industry's typical boom-bust cycle. This will help his company make continued progress in improving product quality while keeping employment high, he says. Ford Motor, flush with near-record profits from buoyant U.S. car and light-truck sales last year, plans to increase capital outlays and new-product development spending by some 20% over the next five years. The company is aiming for heroic leaps in productivity--by more than 100%--as it looks to double export volume from North America by the end of the decade.

The likeliest killer of his global boom is, of course, the usual suspect: interest rate increases, the central bankers' generic cure for inflation. Certainly inflation is an especially sinister felon because it stalks an economy so quietly before striking. The bankers are also aware of inflation's recidivist history, especially now because, with economic growth occurring in every corner of the globe, the pressure to bid up prices for scarce resources is much stronger than in past expansions.

So where do they see inflation threatening? Just about everywhere. Most commodity prices have been moving up at an accelerating rate since the end of 1993; the Commodity Research Bureau's index of spot raw material prices has advanced by nearly 18%. But it could have been worse. Manufacturers have become more sparing in their use of raw materials--they now account for just half a percentage point of GDP--and hot global competition prevents producers from passing on their higher commodity costs to consumers.

Right now potential wage inflation looks like the more serious worry. Though U.S. unemployment edged up to 5.7% in January, it is still below the 6% rate that many, including dyspeptic bond traders, consider compatible with stable inflation. This non-accelerating inflation rate of unemployment (Nairu, as economists call it) has been rising for the past two decades. OECD labor economists say its biggest footprints have been left in Europe, where rigid labor rules and initiative-sapping unemployment benefits have caused the Nairu to soar. It was about 5% in the late 1970s and is some 9% today, the economists say.

Even though U.S. manufacturers are up against their capacity limits, there's still plenty of idle plant around in the decoupled expansions of other countries to hold prices of finished goods in check. Consumer price inflation in Europe, for example, is near a 30-year low, and Brian Mullaney, an economist with Morgan Stanley in London, forecasts that CPI growth in Europe will stay flat at 2.8% through 1995. In Japan, where the strong yen has deflated the cost of most dollar-priced commodities, economist Dick Beason of investment firm James Capel Ltd. in Tokyo estimates that a gradual recovery this year will boost consumer prices just 1%.

Still, central bankers in the mature industrialized economies and in the fast-emerging ones seem determined to err on the side of caution. Says Farid Abolfathi, an international economist at DRI/ McGraw-Hill, the economic forecasting firm: "The children of Paul Volcker [the former Fed chairman and renowned inflation warrior] are everywhere. There's an almost perverse competition among them to be the first to raise rates." Volcker's scions at the Fed, including his successor, current Chairman Alan Greenspan, have led this cautionary pack, hiking short-term U.S. rates seven times in the past year, most recently to 6.5%--or back to where they were in 1991.

Because the slowing effects of rate increases don't show up until six months to a year later, the chances that the Fed's preemptive hikes will push the U.S. into a 1995 recession are remote. Even so, a sharp deceleration of U.S. growth, accompanied by rising interest rates in other countries, could stall the global expansion. Countries like Italy, Sweden, and Canada, which operate under enormous debt (see box), look particularly vulnerable. Also hobbling global growth, if only temporarily, are the increases in U.S. interest rates, which have narrowed the spread between safe returns domestically and riskier ones overseas, and encourage investors to keep their money close to home. Says David Shulman, chief equity strategist at Salomon Brothers: "The Fed is the world's lawn sprinkler. When U.S. interest rates were low, liquidity spread to the farthest reaches of the global lawn. Now that the Fed is tightening, the capital flowing to the remoter emerging markets is drying up."

Not entirely. Scary as the plunge into Asian and Latin American currencies and bourses may look in the aftermath of Mexico's meltdown, investment in the dynamic growth economies via country funds or particular stocks will likely continue. For one thing, many investors consider the big risk to be more than outweighed by potential gains. Foreign securities still account only for 1.2% of U.S. investors' portfolios despite the fact that they have more than doubled since 1990.

Whatever its immediate problems, even Mexico hardly merits all the hyperventilating one hears. Yes, its mismanaged liquidity problems will reduce the country's short-term growth prospects and will slow demand for U.S. imports. But Christopher Probyn, a DRI economist, estimates that the drop in orders will shave U.S. exports by only 1.5% over the coming two years. After that, he says, Mexico's fundamentally sound long-term economic prospects will begin to reassert themselves.

As for those countries still in the shadow of the clouds sent up by Mexico, Lehman Brothers economist Mushkat sees two silver linings. First, a slower inflow of portfolio capital should prove easier for still immature developing economies to absorb. Second, Mushkat expects that market regulators in those places will use the cooling of investor ardor to reform their stock and bond exchanges, the better to compete for capital once the passion returns.

Until then, emerging economies will be able to tap their own large reservoirs of domestic savings. Gross saving rates in many countries from Brazil to India exceed 20% of GDP and run as high as 45% in China and Singapore. This puts most of the West to shame. The rate in the U.S., for example, is 12%, and in Britain nearly 13%.

Even as portfolio investors hold back, increasingly open emerging markets should have little problem attracting foreign direct investment (FDI) in everything from pizza restaurants to power stations. Since 1989, worldwide FDI has nearly tripled, to more than $80 billion last year. The lure is irresistible. Among U.S. multinationals, nearly 20% of total pretax profits now come from sales by foreign affiliates. Their profit margins in the dynamic developing economies--9.5%--are more than twice those earned in North America, Europe, or Japan.

Infrastructure spending is the flywheel at the heart of the emerging nation growth engine. By some estimates, investment for power generation, transportation, telecommunications equipment, and the like could add up to $1 trillion by the end of the decade, a potential bonanza for U.S., European, and Japanese manufacturers of capital goods--and a cushion against slower growth in their home markets. This boosted demand is even giving new vitality to some sunset industries. Anticipating weakening domestic sales, for example, restructured U.S. steelmakers are plotting their first significant export push in better than a decade. Because infrastructure investments are usually backed by the operating revenues they generate, they are far less vulnerable than portfolio investment to sudden shifts in investor sentiment. Recognizing that this spending helps break through bottlenecks that retard further development, governments of emerging nations are giving these projects top priority. Not surprisingly, foreign companies are eager to seize some of this action. Among them: the Hughes division of General Motors. In late 1994 it was awarded a license by India to install and operate the country's first private earth relay system, transmitting data via satellite for commercial users.

AT&T has reached out and put together a string of like deals. Over the past six years its Network Systems group has created seven joint ventures in China, and it counts Indonesia, Thailand, and the Philippines among its fastest-growing international markets. In January AT&T signed a $150 million contract to provide gateway switches to the telecommunications authority in South China, the first phase of a multiyear, $500 million telephone system upgrade. Richard Brandt, a group vice president, estimates that the project, financed with conventional bank loans, will pay for itself within a year of completion. Brandt expects that the resulting communications improvement will spark additional investment as companies are drawn to the region. Says he: "The multiplier effects are absolutely staggering."

The rate of expansion among the dynamic emerging markets will, of course, eventually slow. In 1995--the Year of the Pig in the lunar calendar, by tradition a year of prosperity--growth will slow in six of 13 Asian economies, including China's, say economists at Jardine Fleming, the Hong Kong bank. But for the foreseeable future, says Keith Ferguson, an economist with Barclays de Zoete Wedd in Hong Kong, probably none of the six will experience the kind of business contractions common in the mature industrial nations. Instead, they will see some rise in unemployment against a backdrop of continued increases in GDP--characteristics of a so-called "growth recession."

This isn't such bad news. Jardine's economists forecast that these "slowing" economies will still be growing, at an average 7.2% a year. We should all celebrate the Year of the Pig with such recessions.