The BRIC Countries Are Dead. Who’ll Stand Up Now?
Courtesy of Sprout Money
Less than 15 years ago, the term ‘BRIC’-countries was introduced by Jim O’Neill. It was an acronym for Brazil, Russia, India and China whose economies were expected to overtake by 2050 the countries which were the largest economies in 2000. There was a lot of lobbying going on from other countries to be included as being seen as one of the fastest growing economies definitely had its advantages.
However, if we now look at the current state of the BRIC countries, it’s far from certain that the acronym will last much longer. The countries have proven to be not so immune from the problems of the world economy and especially Brazil and Russia can’t be seen as prospering economies anymore, China’s growth rate is also slowing down and India now seems to be the only BRIC-country which is still appealing.
Let’s start with Brazil. It used to be an economic tiger in South America as the country developed and evolved at a much faster pace than its surrounding Spanish-speaking countries. However, the past few years the economic growth rate has stalled and the re-election of Dilma Rousseff as president of Brazil might very well be a good reason to reduce expectations for the future as she can’t really be seen as a pro-business president. Brazil’s economy is expected to grow by less than half a percent this year (after the GDP actually contracted in the second quarter of this year) and by just over 1.1% next year. Those aren’t really the numbers you’d expect from an economic powerhouse.
We can be really brief about Russia. As the country’s public finances are entirely depending on oil and gas sales, the recent slump in the oil price will have a devastating effect on the Russian economy and there’s zero doubt the country might enter into a prolonged period of recession. It would be the only BRIC-country which will have to deal with the R-word and the situation could be aggravated by the economic sanctions imposed on the country by Western countries which are slowly choking Russia’s non-fuel parts of the economy.
Two of the four economic powerhouses will experience an economic growth rate of respectively close to zero and below zero, which means the weight of the emerging markets’ economic performance rests entirely with India and China. The entire world has been panicking about China, but let’s not forget the country is continuing to grow at an astonishing rate. China doesn’t think its economy is in a very bad shape, and it has reiterated it wanted to increase its strategic stockpile of oil to around half a billion barrels. Several sources in the sector have confirmed to us that China is stepping up its efforts to secure the oil at the current low world price. That’s probably also the main reason why the charter rates for both the Suezmax and VLCC oil tankers have been skyrocketing lately.
India is also doing great with a growth rate of in excess of 6% which is expected to remain relatively stable in the foreseeable future. So the BRIC-countries have actually seen a large shift amongst the members, and it’s quite obvious both Brazil and Russia have lost their status of emerging stars. Who would be able to take their spots? Mexico? Not really, as its growth rate was below par at less than 2% in the past few quarters. Peru’s economy has been booming but recently hit a wall. Indonesia seems to be the most logical potential addition with a relatively large economy and a growth rate which has been decreasing a bit but is still around the 5%-level. Although Colombia’s GDP is much lower than Indonesia’s its growth rate has been relatively comparable, so Colombia could also benefit from the economic problems in Brazil and Russia to put itself in the spotlights.
A lot is changing in the world and two of the BRIC countries seem to be either on life support or could be considered to be a lost case. The world economy is changing fast, and there will be victims and collateral damage.
