|It's yesterday once more...or is it?|
However, as the global financial crisis hit and ever after, we have learned that not all is hunky-dory in BRICs-land. As the chart above shows, the developed economies that were once disregarded as old-hat are actually performing better now than they were before, whereas the opposite holds true for the BRICs. To be sure, there is no single reason for the latter's slowdown: Brazil has been caught in the slide of commodity prices as global growth decelerates. Russia has similarly been affected on top of being ostracized as an international pariah due to its (mis)adventures in Ukraine. India remains mired in red tape that ha slowed its liberalization (although the current Modi administration is looking to fix that longstanding problem). And, of course, China has been affected by slowdowns in consumer markets it exports to.
Certainly, the headwinds the BRICs face are strong. Worse yet, long-term challenges such as demographics are starting to hurt:
Interest rates are likely to rise gradually from their current ultra low levels in the rich countries - particularly in the US and the UK. That will affect global rates and make investment more expensive to finance in emerging economies. Many also have to contend with ageing populations and slower growth in the number of people of working age. For some that demographic advantage they had previously is now fading. Russia and China are among that group. That was factored into the Goldman Sachs projections.
Jim O'Neill says that more recently their policies in this area have been "surprisingly good". China is easing its one child policy and, he says, "Russia has had some success in raising life expectancy with much smarter policies about alcohol consumption."Going back to Jim O'Neill, is he much less sanguine on the BRICs now than he was over a decade ago? The overall point is that these countries may be undergoing a process of adjustment which entails a slowdown in absolute growth figures rather than a secular stagnation that will drag on for a long time like in the bad old days:
While all the Brics have slowed this decade, the weakest performers now are Brazil and Russia. Their average growth rates have been below the Asian Brics all along and this year they slowed even further. For 2014 as a whole, the IMF has projected some growth for those two but very little - 0.3% for Brazil and 0.2% for Russia. Both those figures incidentally are a good deal weaker than what has been predicted this year even for the struggling eurozone, which has been described as haunted by the "spectre of stagnation" by the Bank of England governor Mark Carney.
As for Russia and Brazil, Jim O'Neill is not yet ready to wipe these two nations out of his Bricspicture, but the last few years have certainly been a disappointment. So it is not time to write off the Brics. They are showing some cracks for sure, and, to change the metaphor, China in particular is embarking on a high-wire journey as it seeks a different and perhaps ultimately more sustainable form of economic development. The Brics and how they perform matter for the rest of the world, more so than they did at the turn of the century, which is after all the whole point of the original idea.In other words, the BRICs aren't necessarily out of it yet.