Bric wall yet to crumble

Not all plain sailing perhaps, but emerging markets are still largely making strides.

About this time last year, when many economists were expressing serious concerns about the economic and financial health of what many persist in calling "emerging markets", (although a better term is "high growth markets") it was fashionable to declare the death of the "Bric" concept.

This was understandable when bond prices were falling across most of Asia and South America, and GDP growth rates were being downgraded for many countries in those regions. But new research suggests that perhaps it was premature to call the end of the Brics.

Just a little history. The Brics – Brazil, Russia, India and China – were first identified by then-Goldman Sachs economist Jim O’Neill in 2001. Mr O’Neill identified these four as the leading engines for global economic growth, and for the next decade their performance seemed to prove him right.

(South Africa was later added to the grouping for political reasons, although its economy never met the criteria for inclusion set by Mr O’Neill. There is currently a suggestion that Argentina may also be admitted to the political summits that the Bric nations occasionally hold, perhaps making them the Briacs.)

Even during the global financial crisis, the big four held together comparatively well when most of the rest was in meltdown; China in particular helped to pull the rest of the world out of the financial mess that began in the US and rapidly infected virtually every economy on the planet.

But a couple of years ago, some experts began to have doubts the the high levels of growth the Bric nations had enjoyed could continue. In Brazil, Russia and India, growth rates fell to the low single digits; even China’s GDP growth dropped to around 7.5 per cent – an economic boom for most economies, but comparatively sluggish set against the double-digit expansion of China over the previous two decades.

These fears seemed to be confirmed when global investors began to sell off the debt of these countries, sending yields rocketing on their bonds and wiping billions off the value of their stock markets.

(It should be pointed out that the UAE, and some other parts of the Gulf, bucked this trend, for reasons peculiar to the region. GCC countries were effectively “decoupled” from the rest of the emerging world, with rising bond prices and some of the best-performing equity markets on the planet.)

However, perhaps the tide has turned again on the Brics. New research by the London consultancy Capital Economics suggests that reports of their death may have been exaggerated, although they continue to experience a comparative slowdown in growth rates.

In the second quarter of this year, aggregate emerging market growth was around 4.2 per cent, down from the previous year’s 4.7 per cent but halting the decline at about the level experienced in the first quarter.

The four Bric economies, however averaged around 5.3 per cent, just slightly down on 2013, and strong enough to suggest there could be a sustained rebound under way.

The star if the show between March and June was Brazil, which grew at 3.3 per cent in the quarter, up from 1.9 per cent in the first. You might be tempted to think it was due to a sudden burst of economic activity to get the country ready to stage the Fifa World Cup, but detailed analysis of the figures suggest otherwise. “The data also provided encouraging signs of a much-needed rebalancing towards investment and exports, and away from consumption-led growth,” says Capital Economics.

In contrast, Russia was the laggard of the Brics. Of course, with the political and security situation in Ukraine growing increasingly serious throughout the first half of the year and western sanctions affecting overall economic activity, it was always going to be difficult for Russia to hit the 5 per cent growth levels of 2011, but Russia’s problems appear deeper than that. With an abrupt slowdown to 1.2 per cent in the first half, compared with 1.6 per cent last year, Russia was technically in recession in the second quarter.

China remained just short of the 8 per cent level in the second quarter, while India struggled to stay just above 2 per cent. These are the two biggest constituents of the Brics, so we will have to wait on them to gauge the real recovery of the high-growth world.

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