03 July 2012

Goldman Sachs - Do The BRICs need Replastering


Do The BRICs need Replastering?
In late 2008 and early 2009, there were two reasons why some of us found it relatively easy to go against
the prevailing view that a worrying global depression was around the corner. In fact, the inevitability of an
aggressive fiscal stimulus in many countries, combined with the ongoing rise of the so-called BRIC
economies meant that early 2009 was an excellent time to invest. Over three years later, the prevailing
view is that all western economic policy levers are spent as the consequences of that fiscal stimulus have
worn off, and in some cases reversed, under the pressure of bond markets (or at least the perception of
pressure). Interestingly, there is also a creeping perception that the great BRIC economic surge has
come to an end. I want to concentrate on this latter theme this week, although I will make reference to
other topical issues as well.
As readers will be aware, in recent weeks, I have attempted to put the Euro Area crisis into what I
thought was an appropriate global context. I have pointed out that in 2011, China’s nominal $GDP rose
by 1.3 trillion, equivalent to creating an economy the size of Greece every 11½ weeks and an economy
the size of Spain in not much more than a year. The BRIC countries collectively contributed around $2.2
trillion, not too far off the equivalent of another Italy.
But what happens if the BRICs stop contributing to global growth at this pace?
It is undoubtedly the case, with the exception of Russia, that Q1data in the BRIC economies has been
disappointing. Growth in Brazil and India has been especially weak. Ongoing economic releases, notably
another soft PMI for China published Friday, adds to the sense that things are not going as well as the
optimists hoped.



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Goldman Sachs - Do The BRICs need Replastering



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