The BRIC Economies – Engines of Global Growth

The BRIC economies are emerging stronger as ever driven by their favorable demographics, rising incomes, productivity gains and rapidly growing domestic demand. These economies today contribute around a quarter of the global economy (in terms of PPP).

The term BRIC (Brazil, Russian, India and China) was coined by Jim O’Neill, the Chairman of Goldman Sachs Asset Management, to highlight the potential of world’s superpowers. And today, as we come close to the 10^th anniversary of BRIC, they have emerged stronger as projected by Goldman Sachs. While the world’s largest economy, the US, is hit hard by the financial crisis and still struggling with high unemployment rate, over-levered consumers and high dependency on capital, the BRIC economies are emerging stronger as ever driven by their favorable demographics, rising incomes, productivity gains and rapidly growing domestic demand. Today, BRIC and emerging markets are drivers of the global economy. Probably very few investors would be unaware of the fact that BRIC economies’ growth outstripped that of the developed world, rewarding investors with an annualized 20% return between 2001 and 2010.

Growing BRIC Prowess 

There are few doubts about the growing might of the BRIC economies. Brazil, the commodity giant and world’s emerging agriculture powerhouse, Russia, the world’s largest supply of nature gas and is the biggest energy exporter with a quarter of the world’s natural gas reserves, 15% of the coal reserves, 15% of the coal, and 20% of the nickel.  India with highly skilled workforce is the second fastest growing economy in the world with specialized IT strengths, business process and call center outsourcing. China is the fastest growing major economy in the world and undergoing second industrial revolution and has recently attained the status of the world’s second largest economy by surpassing Japan. It has already emerged as the world’s biggest car market by sales. China is leading the BRIC growth bandwagon with a strong 11.4% GDP growth and will be around 10% in 2011. During the last decade, BRIC economies contributed 27.8% of world GDP growth in Purchasing Power Parity (PPP) terms and also steadily increased their share of world output. Today they are contributing around a quarter of global economy (in terms of PPP). Amidst growing prowess of BRIC in the world economy, Goldman Sachs predicts that the list of the world’s ten largest economies may look quite different in 2050. The largest economies in the world (by GDP) may no longer be the richest (by income per capita), making strategic choices for firms more complex.

Challenges Remain 

Although the BRIC economies are growing rapidly, they are also vulnerable to external shocks as they lack adequate risk management and hence they must synchronize fiscal and monetary policies, as suggested in a survey by finance ministry officials at the latest G20 Summit. The survey says "Russia is vulnerable to swings in the price of oil, Brazil to commodity prices, and India and China to global demand. China faces the additional risk of potential changes in currency policy, which could have ramifications for its trade position." It further adds, these economies will face volatile swings within the economic cycle, often requiring corrective measures with high costs, unless the economic management functions within these countries are coordinated via a larger framework.

Outlook

Despite the challenges, the BRIC economies are moving on in the right path and are heading decisively in the directions predicted by Goldman Sachs. They already have emerged as drivers of the global economy and going forward these economies will grow very rapidly.

Given that, going forward, the macro stability of BRIC economies will be one of the crucial indicators to watch from the global investors’ standpoint as this will decide the fate of the world economy.