Are the wheels of the BRICS juggernaut that fired the imaginations of every economist slowing to a halt? When this juggernaut came into being during the turbulent days of a global financial crisis, it was heralded as the messiah of growing economies set out to challenge the Western Goliath, for the leadership of international growth. When Jim O'Neil coined the acronym BRIC ( Brazil, Russia, India, China) in 2001 though later on South Africa joined the group in 2010, he did foresee an economic future that could go beyond $1 trillion!
There wasn't a news byte in every forecast then that showed an upward trajectory in everything. Bar graphs shot up so high that sometimes the bars escaped from the presentation sheet they were contained in. Every forecast, every analysis of BRICS had a halo of super positive growth. Insane predictions were being made as the West was reeling under subprime mortgage crisis. People needed some ray of hope and the simple noun BRICS offered them the much-needed solace. So what went wrong? Though Organization for Economic Cooperation and Development (OECD) reports still believe that the BRICS countries will play a key role in the global economy, we need to understand why the economic halo is slowly losing its sheen.
Between 1990 to 2014, the 'emerging superstars' accounted their share of global GDP from 11% to 30%!(https://www.bis.org/review/r160720c.htm) However various factors and global economic conditions have slowed down the juggernaut.
Let us take a peek into the economic history of 16 years that contributed to its slacking speed and what the future might hold for the countries individually.
Brazil
The economy of Brazil, the seventh largest in the world is in a terrible shape. Inflation is on a 12 year high of almost 10%, profitability in the corporate sector has slumped while the purchasing power of the consumers is at an all time low. Moody's has predicted a sharper recession than -2% which was forecast sometime back. Brazil is one of those most exposed countries that bears the brunt of collapsed-metal-prices as a result of China's slowdown.
Brazil is the world's largest producer and exporter of sugar. But two severe droughts in 2011 and 2014 coupled with global decrease of sugar prices due to an excess supply of sugar has driven a nail in its economic coffin.
It is also bearing the brunt for having been exposed to a strong US dollar. As if that wasnt enough the country's political quagmire (President Dilma Rousseff's fraud and corruption charges making the ratings agency Fitch to term the country's sovereign debt ranking to junk) is dragging down an already battered economy.
How does the future look? The crisis in the country may implode its people to chart its course towards better governance and towards a steady long-term growth. Hopefully.
Russia
This giant is battling several miasmas - Its ongoing conflict with Ukraine leading to imposed santions by the West, tumbling oil prices leading to a critical recession that show no signs of recovering, a sharp decline in economy ( from just over $2 trillion economy in 2013 to $1.2 trillion in 2015) and over dependence on Chinese-driven prices for its commodities. The ruble too has fallen to a despairing low with the country's inflation hovering aound the 15% mark. All these have pushed Russia into a deeper economic black hole.
Its future- Good financial reserves and a smaller population may not push the country to ringing its own death-knell.
India
India is the only country that seems to have a silver lined economy compared to the four BRIC nations. Though it has its own share of poor lending figures and dismal export figures that fell by almost 20%, it is still waiting for second generation reforms that will throw open its economy-doors to foreign investors and in turn liberate its labour markets. The country's reputation as a 'strong-potential but feeble performer' in the global market has a long way to go. If the Modi charm works out to the country's advantage, productivity should increase and India could grow at a much faster rate than that of China in the coming decade. In brief India is evolving...but how long will the world wait?
China
The dragon blew its trumpet for over three decades and is struggling to hold its steam. After an average annual growth of over 10% for 30 years, China's burgeoning growth seems to have lost its spunk. Reasons being:
- Tracking of the dollar has raised the renminbi against other currencies but its exports took a beating. This made the Chinese policymakers to devalue the renminbi in an effort to boost 'yuan' as a global supra-currency which in turn had a cascading effect in the global markets over fears of China's rapidly slumping economy.
- Its ageing population and its reluctance to absorb existing technology leading to a a gap with the developed economies.
- However specialists agree the main reason for the slowdown is the huge pace of growth seen earlier. No economy can continue to grow at 10-12% forever. Its dependance on exports could have translated to a better fortune but the slow down in Europe has had a cascading effect on China too.
However economic experts point out that China's burgeoning middle class (comprising 16% of the global middle class) (http://www.reuters.com/middle-class-infographic) could make up for all the slump by 2030. Its manufacturing prowess combined with the middle-class numbers could overtake US for the #1 slot!
South Africa
A fledgling in the game, South Africa is in the group for political reasons as one of the countries from the African continent couldnt be left out. Though in its nascent stage the rippling effect caused due to the fallout in the Chinese economy has also seen the South African economy begin contracting.
To sum up the world's shift towards emerging economies may continue, but its vociferous phase seems to have reached its end. Growth rates in all the BRICS nations has dropped and the nature of their growth having a direct effect on other economies has slowed down. The growth of other emerging countries having an effect as the BRICS did in the recent past is unlikely. These new economies could swell in numbers, but their tread will never shake the earth as the BRICS did once upon a time. The rich world is cautious than it was a decade or two earlier and is more interested in maintaining export competiiveness. Hundred years ago the world did experiment with trade integration that ended with a war that brought in the new thought of economic nationalism tinted with international conflict. The war in Syria, Russia's invasion of Ukraine or China's territorial foray into international waters are just a tip of the catastrophic-iceberg that the world stands on due to fractionalisation of global economy. Whether the world can build a remarkable era of growth will depend to a large extent how these giants tread their path – or fall, cripple and in the worst scenario lead to war.
by Sheela Mamidenna
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