The BRICs Are No Longer Leading The World's Growth
The emerging markets are no longer the lead contributors to growth to the world’s GDP, they have been replaced by the developed nations. Japan, the U.S. and the rest of the developed markets are contributing roughly 60% of the $2.4T in new economic growth according to Bridgewater Associates.
Bridgewater says that Japan has finally pulled themselves out of stagnation. The U.S. economy has steadily grown but at a lukewarm pace. Lastly, they forecast that the economy of Europe has already started to improve and that the economic reports released tomorrow will confirm this.
On the flip side, the emerging markets, in particular the BRICs are slowing down. International companies have said they have cut profit and growth forecasts in each country. Brazil, India and Russia have been slowing down due to economic mismanagement and infrastructure issues but Bridgewater places most of the blame falls mainly on China with international demand for Chinese goods and services have fallen recently.
Yet it seems that there is too much focus on the BRICs being part of the emerging markets. I would argue that the BRICs should not even be called an emerging market anymore. The other emerging markets cannot compare to the economic maturity of the BRICs. The BRICs are more economically similar to the developed nations than they are the emerging nations. Additionally, if you remove the BRICs from the rest of the emerging markets, the emerging markets are still showing lots of growth.
This “sudden” slowdown should not be a surprise, it is only natural after a decade of exuberant growth that there is a slowdown. Economies move in cycles, they don’t in straight lines. We all know what happened a few years ago here after exuberant growth. It’s the same for the BRICs, except I would argue the BRICS are more similar to the U.S. in the 1920s. The U.S. like the BRICs was a country entering the world as a new economic power. The U.S. grew quickly and had a harsh pull back. It makes sense that the BRICs would follow the same path.
Also two of the BRICs, China and Russia, have probably the two most controlling governments and manipulated markets. The two governments have done everything they can in the past years to prop up their respective economies despite their fundamental flaws. Every time a government has tried to prop up their economy (think Indonesia, Thailand, or England and the BOE), the country would eventually enter into a recession. I would predict that China and Russia will not only fall behind in economic growth but enter a prolonged recession.
What do you think of the BRICs vs. the rest of the emerging nations? Do you think the BRICs are closer to the fully developed nations and there should be a new term between emerging and developed? Should the BRICs’ growth continue to fall or should they recover?
BRICs would do well to consolidate their gains and diversify thier economies, and to think in more regional terms. Much of their progress has been heavily dependant on the US, and now they should become more independant. This will lock in their gains on a more sustainable trajectory, and they should avoid juicing their systems to squeez out a few short term GDP bumps.
On a smaller scale, hotspots in the US would be well advised to think in the same terms. Jacksonville, Utah, Houston, and a host of others have taken advantage of NYs temporary stasis as well as the federal gov'ts overarching priority of stability. This will likely change with the next federal election cycle, and maybe even before then.
Making some very fast gains servicing a large, wealthy client is a great leap forward. But depending on them too much is a mistake. Reinvest the new wealth and sophistication into well rounded development so that there is a long term and sustainable future, and temper the desire to get too rich too quickly.
Great post, I'm going to reread this several times to have it really soak in.
Don't you think that the places like Utah and Texas are benefiting from the rest of the states tax policies? I've been reading the new Meridith Whitney book and she raises a few good points. The states that were hit the least by the economic crisis are recovering quicker. They are not in much as debt and thus do not have to raise taxes to get rid of said debt. I would think states like Utah and Texas will continue to benefit until states have their budgets in order again.
Just as an aside, some states with low deficits aren't necessarily in good shape. Check out some parts of the rust/bible belts where there isn't much of a deficit....or much of anything else for that matter. You'd have to have some civilization in the first place.
Awesome post.
I believe Jim O'Neil has been calling BRIC countries "growth markets" rather than "emerging markets" for quite some time already. Speaking for China, the biggest issue is its GDP growth over the last 10 years being driven primarily by investment and exports. As the country aims to "rebalance" itself towards a more consumer driven economy, investments will decrease, but consumer spending will take a very long time to make up the difference given extraordinary low income per capita levels. As exports fall due to decreased global spending, stronger RMB currencies, this shortfall in investment will lead to decreased GDP growth for the forseeable future.
"The BRICs are more economically similar to the developed nations than they are the emerging nations."
Bro, you're an idiot. Since when is India similar to a developed nation?
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