Insight and data for better decisions

Focus On: BRICS Economic Growth

Watch Out for the Speed Bumps
The BRICS economies are running into speed
bumps, the International Monetary Fund cautioned
recently, announcing that it had downgraded its
expectations for global economic growth as the
outlook for emerging markets had weakened.

relative to advanced economies. Investments in

infrastructure, education and health are among the
key structural challenges in order to sustain
economic growth as the size of the middle class
grows.

In its latest update to the World Economic Outlook,

the IMF cut its global GDP forecast to 3.1% in 2013
from 3.3%. While growth in advanced economies
was trimmed from 1.3% to 1.2%, due to Eurozone
weakness, emerging markets growth was cut 0.3
percentage point to 5% in 2013.

Shorter term, slow recovery in the US and the

Eurozone coupled with the weakness in China
suggests BRICS growth is likely to remain at current
levels throughout 2014.

After years of strong growth, the BRICS are

beginning to run into speed bumps, warned the
IMFs Chief Economist Olivier Blanchard. Brazil,
Russia, India, China and South Africa together
account for around 20% of world GDP and 55% of
the output of emerging and developing economies.
Challenges Ahead
In spite of the slowdown projected for the BRICS,
these economies continue to grow at high rates

Possibly the largest threat to the BRICS and other

emerging markets stems from the possibility the US
Federal Reserve will start tapering their bond
purchases. Fed Chairman Ben Bernankes June
message that stimulus could be reduced caused an
about turn in sentiment towards emerging markets
with equities falling sharply. While the Fed Chairman
has backtracked somewhat on his initial comments,
the threat of massive capital outflows from emerging
economies looms large.
To succeed in boosting and sustaining growth, the

The Size of the BRICS

Brazil

Russia

India

China

South Africa

Population (M)

198.4

141.9

1,223.2

1,354

51.2

GDP 2012 ($B, current prices)

2,396

2,022

1,824.8

8,227

384.3

GDP per Capita 2012 ($ PPP)

11,875.3

17,708.7

3,829.7

9,162

11,375.5

Inflation 2012

5.8

6.6

11.2

2.5

5.6

GDP Growth (Average 2002-2012)

3.5

4.7

7.2

10.3

3.5

GDP Growth: Projection 2013

2.5

2.5

5.6

7.8

GDP Growth: Projection 2014

3.2

3.3

6.3

7.7

2.9

Source: International Monetary Fund

MNI Indicators - Focus On - July 2013

Focus On: BRICS Economic Growth

Watch Out for the Speed Bumps
BRICS will need to simultaneously deal with their
capacity constraints, the inflation pressures and the
effects of financial markets volatility on capital flows
and the exchange rate. And as Blanchard made
clear, these countries will not grow at the rate they
did before the (financial) crisis.
China: Slowdown Threat to BRICS Growth
For China, the second largest economy in the world,
the days of double digit growth are over. In the
second quarter, GDP rose by 7.5% on the year,
down from 7.7% in the first quarter. The IMF
estimated that China will grow 7.8% in 2013 and
7.7% in 2014, while the government growth target
for this year is 7.5%.
While a growth rate higher than 7% is still healthy
when compared to other developing nations, the
China slowdown is already having an impact on
these economies and the global economy.
Moreover there are growing fears that the credit
boom which has financed much of the investment
which has propelled Chinese growth in recent years
has the potential to burst, adding downside risks to
the China outlook.
India: GDP Revised Lower
India is the second largest of the BRICS not only by
the size of the economy but also by population. After
the economy expanded modestly in 2012 by 3.2%,
the IMF estimated India will expand by 5.6% in
2013 and 6.3% in 2014. The 2013 forecast is
0.2% lower than the April projection. Policy
administrative uncertainty was cited by the IMF as
one of the reasons behind the lower forecast.
Like China, India is growing at a slower pace than
the average rate of the last ten years. Nevertheless,
it seems that businesses remain optimistic about the
path of household consumption, with demographic
trends holding the potential for an expansion of
demand.

Brazil: Dealing with Inflation and Investment

Demands
The IMF reduced Brazils growth forecast to 2.5%
for 2013 and 3.2% in 2014. While this is low
compared to the average of the last 10 years, it
shows a clear recovery after disappointing growth of
just 0.9% in 2012.
High inflation and low investment are the main
concerns for 2013 and the authorities are clearly
aware of the former, with the central bank having
hiked interest rates for the third time this year to
8.5%.
Recent protests have seen Brazilians demanding
better quality public services, less corruption and
more investment in education and health. However,
the political reforms proposed by President Dilma
Rousseff, together with the promise of higher public
investment in social services might not be enough to
solve the structural bottlenecks accumulated over
the years.
Russia: Weak External Demand Prompts Severe
Downgrade
The IMF slashed its growth forecast for Russia in
2013 to 2.5% from 3.4% only a few months ago.
According to the IMF, weak investment and weak
external demand are constraining economic activity.
Structural reform, in particularly in public firms, and
increasing investment are key requirements to
support growth in the medium term.
South Africa: Only 2% Growth in 2013
For 2013, economic growth in South Africa was
forecast at only 2%, a 0.8 percentage point
downward revision from the April projection. Weak
private investment, slower consumer spending and
weaker global demand are all set to bear down on
growth at a time when unemployment is already at
25%.
The public infrastructure investment programme will
support South African economic growth in the
medium term.

MNI Indicators - Focus On - July 2013

Focus On: BRICS Economic Growth

Watch Out for the Speed Bumps

IMF Growth Projections for Major Economies

8
7
6
5
4
3
2
1
0
-1
World
Output

Advanced
Economies

United
States

Euro Area

Japan

UK

Emerging
and
Developing
Economies

Russia

China

India

Brazil

South Africa

2013
2014
Source: International Monetary Fund

BRICS Economic Growth: 2000-2014

15
10
5
0
-5
-10
2000

2001

2002

2003

2004

2005

China

Brazil

India

Russia

South Africa

Projection

Source: International Monetary Fund

2006

2007

2008

2009

2010

2011

2012

2013

2014

MNI Indicators - Focus On - July 2013

MNI Indicators
Insight and data for better decisions
Editorial Content:
Philip Uglow, Chief Economist
Lorena Castellanos, Economist
Shigeo Kodama, Economist

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