Broken BRICs

Over the past several years, the most talked-about trend in global economy has been the so-called “rise of the rest”, which saw the economies of many developing countries swiftly converging with those of their more developed peers. The primary engines behind this phenomenon were the four major emerging-market countries, known as BRICs: Brazil, Russia, India, China. The world was witnessing a once-in-a-lifetime shift, the argument went, in which the major players in the developing world were catching up to or even surpassing their counterparts in the developed world. These big forecasts typically took the developing world’s high growth rates from the middle of the last decade and extended them straight into the future, juxtaposing them against predicted sluggish growth in the United States and other advanced industrial countries. Such exercises supposedly proved that, for example, China was on verge of overtaking United States as world’s largest economy, a point Americans clearly took to heart, as over 50% of them, according to a Gallup poll conducted this year, said they think China is already the world’s “leading” economy, even though the U.S. economy is still more than twice as large (and with a per capita income seven times as high). As with previous straight-line projections of economic trends, however, such as forecasts in 1980s that Japan would soon be number one economically, later returns are throwing cold water on extravagant predictions. With the world economy heading for its worst year since 2009, Chinese growth is slowing sharply, from double digits down to seven percent or even less. And rest of BRICs are tumbling, too: since 2008, Brazil’s annual growth has dropped from 4.5% to two percent; Russia’s, from seven percent to 3.5%; and India’s, from nine percent to six percent. None of this should be surprising, because it is hard to sustain rapid growth for more than a decade. The unusual circumstances of the last decade made it look easy: coming off the crisis-ridden 1990s and fueled by a global flood of easy money, emerging markets took off in a mass upward swing that made virtually every economy a winner. By 2007, when only 3 countries in the world suffered negative growth, recessions had all but disappeared from the international scene. But now, there is a lot less foreign money flowing into emerging markets. The global economy is returning to its normal state of churn, with many laggards and just a few winners rising in unexpected places. The implications of this shift are striking, because economic momentum is power, and thus the flow of money to rising stars will reshape the global balance of power. The notion of wide-ranging convergence between developing and the developed worlds is a myth. Of the roughly 180 countries in the world tracked by International Monetary Fund, only 35 are developed. The markets of the rest are emerging, and most of them have been emerging for many decades and will continue to do so for many more. Harvard economist Dani Rodrik captures this reality well. He has shown that before 2000, the performance of the emerging markets as a whole did not converge with that of the developed world at all. In fact, the per capita income gap between the advanced and developing economies steadily widened from 1950 until 2000. There were few pockets of countries that did catch up with the West, but they were limited to oil states in the Gulf, nations of southern Europe after World War II, and the economic “tigers” of East Asia. It was only after 2000 emerging markets as a whole started to catch up; nevertheless, as of 2011, difference in per capita incomes between the rich and developing nations was back to where it was in the 1950s. This is not a negative read on emerging markets so much as it is simple historical reality (…..)



Acerca de ignaciocovelo
Consultor Internacional


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