Accounting for more than 25% of global GDP (PPP) and more than 40% of the world’s population, the BRICS are a force to reckon with globally. The term “BRICs” was firstly coined by economist Jim O’Neill and stands for a group of four countries, i.e. Brazil, Russia, India and China. Thanks to their large populations, massive land share and considerable natural resources, these economies have grown rapidly, and yet sustainably over the last decade, contributing to about a third of global GDP growth. Their contribution to world’s GDP grew as well from 16% of global GDP (PPP) (2002) to about a quarter (2015). A look at the performances of the individual economies gives us a glimpse of the potential of the BRICs.
China has been spearheading global economic growth by averaging a 9.2% growth in the last 15 years; it became the world’s largest economy (in terms of GDP PPP) and the largest goods exporter in the world. Put simply, China’s performance is nothing short of a ‘miracle’. Growth in GDP per capita from 2000 to 2010 has been the fastest of any major economy in the world. Chinese leaders used gradual economic reforms, prudent fiscal policy and the disposal of the largest labour force to their advantage. The rest belongs to history.
However, despite its recent successes, the future remains uncertain for China. Growth has slowed down to only 7.7% in 2015, an exceptional figure compared to that of most countries in the world but yet disappointing for Chinese standards (where growth of less than 2 digits is considered as bad). Trends have been showing that China may have indeed reached its dreaded “Lewis Turning point”, i.e. a state of the economy where labour surplus is equal to zero. As a result, wages have been increasing dramatically, depriving China of its primary strength, cheap labour force. Worthy to note though is also that this reduced growth rate may be partly due to the Chinese government’s intentions to pursue sustainable quality growth over sheer quantity-based growth.
The largest democracy in the world, India, has been leveling up its aspiration for growth too. The country is now looking to reach a double-digit growth figure thanks to the influence of the nationalist revolutionary leader, Narendra Modi, the man who won the confidence of the nation in 2014 national elections and received one of the largest mandates ever in the history of Indian democracy thanks to his promise for economic development. Today, India and the world are awaiting the results of “Modinomics”.
However, India has been facing several problems at the institutional level after the presence of a weak central government before the 2014 elections. Despite these problems, the demographic capital of the economy is too rich to be neutralized. Displaying the largest young workforce in the world, India continues to grow in such a way that it is set to overtake Japan by 2025 and the United States by 2050. The economy glimpses with a reinvigorated shimmer after years of sub-par performance. The financial markets are growing with unprecedented rates and the business environment looks very positive. India catches today the attention of the world with the promise it holds and the future it beholds.
In contrast with other BRICs countries, Russia sings a very different story. Russia is the largest country in the world and the state of its economy is more developed than that of countries such as India. After a difficult period following the fall of the Soviet regime, Russia seemed to have regained its aura by 2010. However, a combination of factors has put a strain on the country’s recent development.
The rise in US shale gas has led to oil prices plummeting, Russia’s most important source of income. The Russian intervention in Ukraine in 2014 has also triggered global economic and financial sanctions towards the country. The ensuing capital flight dehydrated the economy severely and the Rouble has been in quasi free fall since then. The Russian stock market fell by 45.2 % in 2014; imports fell by 9.8% while exports fell by 4.9%. The economy is also expected to contract by 3.8% in 2015 considering a scenario in which oil price averages $53 a barrel. However, some economists have also pointed out to the fact that the reduced performance of Russia has been less acute than expected, which shows that the economy may be fairly resilient to shocks. This being said, the summer is hot and the bear suffocates in its own fur.
Such as Russia, Brazil is also encountering difficult problems. GDP fell by 0.1% in the first quarter of this year, exports and imports have been falling and confidence in the economy has deteriorated due to uncertainties about macroeconomic policies. Roots of the current slowdown can be traced back to the deterioration in domestic demand as private consumption has recorded its worst performance since 2006.
Currently, the government is now working hard to correct its fiscal imbalances, through several austerity measures. Additionally, the government has also proposed trade talks with the EU and a free trade agreement with Mexico in order to stimulate falling exports. In the long run, Brazil is set to grow over the next few decades and seems to be the only country among the four BRIC nations to display a competitive manufacturing industry, developed services and natural resources on a large scale.
Global economists predicted that the BRIC nations would organise themselves as an economic bloc. The BRICs, though, seemed to have gone a step further by entrenching political connections between them, bolstering their interests as a group. For example, last year, the BRICs nations have reached an agreement to form a $100 billion New development bank that would be headquartered in China and headed by the Indian K.V. Kamath.
However, a potential obstacle in the progress of the BRICs remains the fragility of diplomatic relations among some of them. China and India have been historical regional rivals and, given the current context, their rivalry may extend from geographic matters to economic and global power. Russia is tagged in a conflict in Ukraine that could considerably affect its economic future and Brazil’s economic maneuvering has been weak.
Whereas it is undeniable that the BRICs are the future of the global economy, one can say that, while a few players spearhead the team’s progress, a few still lag behind.
Image Courtesy: Ministério das Relações Exteriores, http://bit.ly/1WaGYTO