Be optimistic on BRICS

The discussion about the economic slowdown on BRICS (acronym for Brazil, Russia, India, China and South Africa) and whether these markets will be able to overcome their own challenges is becoming repetitive. It is true that the emerging markets’ economies have been decreasing, but it is important to consider that most of these countries are growing more than the developed nations.

The financial crisis has hit all the economies around the world, especially the export-oriented ones such as BRICS. This scenario has been seen since the second half of 2011, and particularly in this year, when many emerging markets started to fight against the slowdown in their gross domestic product (GDP).

There are, however, many reasons to be optimistic about BRICS. Firstly, the five countries did their financial homework. Their economic fundamentals are now more solid compared a decade ago. Together, the BRICS’ countries have the world’s highest volume of reserves, which sums up to more than US$ 4 trillion.

Secondly, BRICS still have room to use macroeconomic tools to stimulate their economy. Brazil, for instance, has been reducing its interest rates sharply in order to fight against its economy slowdown. Over the past year, the Brazilian central bank cut the county’s interest rate by 525 basis points, more than any other group of the 20 nations. The Brazil’s benchmark Selic interest rate is 7.25%—a historic low level, but still high compared to other emerging and developed markets. Besides, these five countries have been using expansionary fiscal policy to stimulate their GDP.

Thirdly, commodities prices might remain high. As the emerging markets are still growing, these countries will support the demand for commodities. Oil and metals prices might continue volatile, but the forecasts for agricultural commodities are still good.

Another reason to be positive on BRICS is their powerful consumer market. Brazil, Russia, India, China and South Africa account for over 40% of the global population and about 25% of the global GDP. According to some economists, Brazil might just grow 1.5% this year, yet retail sales are projected to increase from 7% to 8%. China and India’s population is massive, which puts these countries ahead of the game.

Finally, the BRICS countries have been working to increase their cross-border investments or even to create an alternative lender (the BRICS development bank) to the World Bank and other finance bodies. The bank might initially start with US$ 50 billion in capital.