Solid or Crumbling BRICS?

By Jean-Michel Meyer
Posted on Tuesday, 3 January 2012 00:04

China is the only country among the Brics bloc not to be affected by the unstable world economy. The emerging economies of Brazil, Russia, India and South Africa have all been affected by recent market upheavals.

Brazil, Russia, India, China and South Africa came under the spotlight after Albert Edwards, a renowned strategist at SG Cross Asset Research rebaptised the BRICS acronym as the “Bloody Ridiculous Investment Concept” in November last year.

“Investors are desperate to believe the EM (emerging markets) and Brics story, for they have so little alternative” in spite of, according to Edwards, “the recent poor performance” of emerging markets.

Shock waves were sent across the world when Brazil, the largest economy in Latin America’s 3rd quarter performance showed no growth as confirmed by a December 6 report by the Brazilian Institute of Geography and Statistics (IBGE).

In 2011, the Brazilian government said it expected a GDP growth of 3.5 percent in 2011 – a far cry from 2010’s 7.5 percent.

This has contributed to the setting up of its “Accelerated Growth” programme to help reduce production cost by boosting public investment to improve infrastructure.

And with only a 4 percent growth in 2012, Russia’s situation is hardly any better. The same trend is shared by South Africa, which expects a 4.4 percent growth in 2012.

South Africa is more integrated into the global economy than its African counterparts and therefore, more sensitive to cyclical ups and downs.

Africa’s number one economy will fall below the continental average of 6 percent in 2012.

In India, the record 10.4 percent rate recorded in 2010 will give way to a 7.2 percent GDP growth, the lowest increase since 2004, before rebounding to 8.2 percent in 2013.

But India’s inflation (10 percent in 2011, against 16 percent in 2010), coupled with its endemic high unemployment figures, remains the black spots of the Asian country’s economy.

Indians have so far proved to be very wary and have a high savings rate, close to 35 percent of GDP.

And with highly regulated financial markets, the share of foreign investment remains modest in relation to the financing needs of the country.

The Indian economy, in general terms, is still very much closed, as evidenced by the failed attempt by the government on December 7, to open the retail sector to multinationals.

Transient or established weaknesses of the Brics nations? Whatever the case, one thing is certain: they now represent 40 percent of the global economy.

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