Where is the ‘decoupling’?

Some years ago, when the BRICS countries (acronym for Brazil, Russia, India, China and South Africa) were growing very fast and the developed countries were struggling to accelerate their economies, many economists said that the “decoupling” thesis was evident and clear, with emerging and developed markets moving in opposite directions. China, analysts said, could be the new economic world’s driver and the country would beneficiate especially from its suppliers, which meant the others emerging markets.

It is clear that the “decoupling” thesis was premature and inappropriate, as an article by Financial Times showed today.  The global slowdown has hit the major emerging markets economies hard, although most of them will continue to grow more than the developed countries. China’s gross domestic product (GDP), for instance, might grow around 7% or 7.5% this year in contrast to the near 10% average annual growth seen in recent years.

Brazil is the most problematic case within BRICS. After growing 7.5% in 2010 and 2.7% in 2011, Latin America’s biggest country has been struggling to put its economy on track again. In the last months, Brazil has been using all kinds of monetary instruments to revive its economy. The Brazilian central bank has been reducing interest rates sharply in order to fight against its economy slowdown, but all these efforts have been creating another problem, inflation.

And there is more bad news. Today, the International Monetary Fund (IMF) reduced its world economic forecast. According to the IMF, the global growth might reach 3.3% in 2012 compared to 3.5% in its previous estimate. In 2013, the world might grow 3.6% compared to 3.9% in its last report in July. The IMF’s new estimates suggest a 15% chance of recession in the United States next year, 25% in Japan and above 80% in the Euro area. The forecasts are part of the fund’s World Economic Outlook report, released four times a year.

For Brazil, the IMF reduced its forecast from 2.5% in its last estimate to 1.5% this year. The Brazilian economy has the lowest growth forecast compared to its peers in the BRICS group.  

The IMF’s downgrade for India has been the most aggressive within the major economies. The fund expected India’s economy to advance 4.9% in 2012, 1.3 percentage points less from the July forecast. India has had the worst mid-year recast by the IMF for any major economy.

For Russia, the International Monetary Fund (IMF) reduced its forecast in 2012 from 4% to 3.7%. The institution has also revised its estimates for Russia's growth in 2013 from 3.9% to 3.8%. The last time India’s growth rate fell below 5% was during the global financial crisis in 2008.

According to IMF forecasts, South Africa might grow 5% this year, while in July the projection was 5.4%. China, on the other hand, will face a “soft land” and grow 7.8% this year and 8.2% next year. In July, the IMF had forecasted growth of 8% in 2012 and expansion of 8.5% for 2013.

Today, Brazil, Russia, India, China and South Africa account for over 40% of the global population and about 25% of the global gross domestic product. Together, the five countries have the world's highest volume of reserves, which sums up to more than US$ 4 trillion.

As the Financial Times article says, it is clear that “the declarations of ‘decoupling’ from the west were premature”. The article reminds us that European Union remains collectively the largest economy in the world, and that a recession there and a slow growth in the United States inevitably affect the BRICS nations. In a globalized world, every problem echoes from one country to the others, sooner or later.


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