BRICS: a terrible hangover

After toasting the world with high economic growth rates from 2003 to 2010, the BRICS countries (Brazil, Russia, India, China and South Africa) are having a terrible hangover. An article published by the British magazine “The Economist” this week puts on spotlight the descending economic growth forecasts elaborated by International Monetary Fund (IMF) for BRICS in 2012except for Russia, where the growth rate has been keeping.

First of all, China is struggling to grow as fast as 8% while India is more focused on reducing inflation. In the case of Brazil, only 15 months ago, the IMF’s forecasters expected the country would grow by over 4% this year. However, last week their 2012 forecast was just 2.5%. Over the same period, South Africa’s 2012 growth forecast was cut from 3.8% to 2.6%. “None of the biggest emerging economies stands on the edge of a dramatic financial precipice, like their counterparts in the euro area, or a fiscal cliff, like America’s. But their economic prospects have nonetheless started to head downhill”, says the magazine.

According to “The Economist”, some of this slowdown can be blamed on events elsewhere. “The European Union remains the biggest foreign market for many emerging economies, buying about 19% of China’s exports and 22% of South Africa’s.” Another thing is that some emerging markets policymakers were nervous about price pressures or property bubbles and they adopted measures to reduce growth and keep inflation on track.

But the slowdown is not simply a demand-side phenomenon, says the British magazine. The underlying rate of sustainable growth may also be less impressive than previously thought.

So, is this the end of the dream? Not yet, according to “The Economist”. By 2010, the combined dollar GDP of the BRICs was already about 75% bigger than Goldman Sachs foresaw when it made its original projections seven years earlier. “The big emerging economies may never again grow as fast as they did after 2003. But the BRICs scenarios did not assume they all would. In its latest projections, released last year, Goldman Sachs envisioned average growth for the rest of this decade of 5.2% in Brazil, 5.4% in Russia, 6.3% in India and 6.9% in China. It now looks as if Brazil and Russia may fall short of this projection. But China and India can still dream of fulfilling it”, says the magazine.

It’s important to remember too that emerging economies have amassed high levels of foreign-exchange reserves, which is a guarantee against a currency crisis. So, if foreign capital were to withdraw abruptly as it did 15 years ago, the effects would not be as ruinous.

Analysts are expecting a slowdown in the emerging markets growth ratio, but they say there are quite a few chances of a turnover. Besides, it’s important to consider that the emerging markets economies are going pretty well comparing to the developed countries.

After an economic growth boom, it is natural that countries face a slowdown. The problem is the fight against corruption and the investments in infrastructure were pushed aside during the fast growth period.  Most of the countries haven’t done the necessary changes to achieve a sustainable economic growth in the future. So, maybe it is time to pay the bill.


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