BRIC shoppers will ‘rescue world’: economist

The BRIC economies are performing better overall than O’Neill forecast when he unveiled the term in a November 2001 report. He predicted they would account for 10 percent of global economic output by 2010. Already, they comprise more than 15 percent.

Forecasters at Merrill Lynch & Co. share the enthusiasm. “Can BRICs help stabilize the global economy?” Merrill’s global economics team asked in an October report. “We think so.”

This doesn’t mean that the downdrafts being felt by the BRIC nations don’t hurt. “A year ago everyone was so optimistic about emerging markets,” says Marc Faber, who manages US$300 million in Hong Kong. “Now the global economy is going into a severe recession and it is the most volatile economies — the emerging markets—that are being hit the hardest,” says Faber, publisher of the Gloom, Boom and Doom Report.

The BRIC countries’ stock markets have seen big swings. The benchmark index in Shanghai has been down as much as 70 percent from its high, while Moscow’s stock market has fallen as much as 75 percent from its peak.

At its peak in May 2008, Brazil’s Bovespa Index had quadrupled in four years. By late October, the index was down 60 percent from its May high. Brazil’s real in August and September erased two years of gains against the dollar and euro.

The question is whether a deeper collapse is coming — or a turnaround. Mark Mobius, the Singapore-based money manager, says BRIC markets are a buying opportunity. “We’re like children in a candy shop,” says Mobius, 71, who oversees US$30 billion in emerging-market equities at Templeton Asset Management Ltd.

The obstacles the BRIC nations have to negotiate include the cutoff of capital as U.S. and European banks refuse to lend. Japan and Germany are in recessions, recent economic data show, while the U.K. and U.S. economies are also shrinking. That means lower demand for products from China, services from India and energy and metals from Russia and Brazil.

China’s booming economy, which expanded by 9.9 percent a year for three decades, may slow to 7.3 percent in 2009, says China International Capital Corp., a Beijing investment bank. Growth in India may drop to 6.5 percent in 2009, from 9 percent in the year ended in March 2008, according to CLSA Asia-Pacific Markets, part of the French bank Credit Agricole SA. In Brazil, where exports of iron ore and other commodities are vital, growth may slow to 2 percent or less, from about 5 percent in 2008, according to Morgan Stanley.

Growth in Russia, the world’s second-largest oil producer, after Saudi Arabia, may drop to 3 percent in 2009, according to Arkady Dvorkovich, an adviser to President Dmitry Medvedev. Growth topped 8 percent in 2007, according to the Russian government.

“The oil price is the main transmission route of the crisis to Russia,” says Vladimir Osakovsky, senior economist in Moscow for Italy’s UniCredit SpA. Crude oil is down 63 percent from its July record, trading at about US$54 a barrel in London at the end of last week. The government has raised interest rates and spent foreign currency reserves to try to halt a slide in the value of the ruble. The Russian currency lost 3 percent against the euro last week. Investors have pulled US$190 billion out of the country since August, according to French bank BNP Paribas SA.

BRIC bulls like O’Neill say the four countries are much better prepared for this global economic crisis than they were for the turmoil of a decade ago. Banking systems are stronger and international trade has expanded. Most important, the governments of the BRIC nations have accumulated some of the world’s largest financial reserves.

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