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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