When the crisis is over, BRICs are going to be in good shape

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BRIC.jpgAs the financial turmoil continues to affect the global economy and corporate players implement their best survival strategies, those with a more visionary outlook are considering what the landscape will look like once financial flows go back to some sense of normalcy. Who will survive? Where?, and in what position? It seems no country is completely immune from the consequences of the crisis, yet some economies are clearly in better shape than others. Brazil, Russia, India and China, together the BRIC countries, are good examples.

In general, stock markets in BRIC economies are down, credit is tight and real estate sectors have taken a severe downturn. Weaker demand from developing countries is seriously affecting export sectors, factories are closing and social instability has become a possibility. It is not an optimistic scenario but neither is it for the rest of the low cost countries, nor for companies from the US and Europe sourcing from those markets. Yet BRIC economies are actually reasonably well-positioned terms of (1) their current initiatives and (2) the potential for the future.

In the first instance, large trade surpluses in the past decades and therefore strong foreign currency reserves have enabled BRIC governments to increase spending and boost consumer demand. The 4 trillion yuan stimulus package recently injected by the Chinese government is a case in point. In addition, BRIC governments have shown a leaning towards a more interventionist and/or Keynesian perspective compared the developed world, and this may help to keep markets up in difficult times.

In regard to potential for the future, if the goals of BRIC government intervention can be achieved, we could see internal demand re-emerging before those of developed economies. This is due to the sustained economic growth that BRIC countries have achieved recently, to the low GDP per capita in BRIC countries with large populations (40% of the world population), to higher saving rates, and a growing middle class. In the future, domestic demand could perform a more active role as an engine of economic growth, rather than foreign direct investment (FDI). Moreover, the last five years have seen a notable increase in south-south FDI, that is, bilateral investment between developing economies such as BRIC countries.

The share of developing countries in global GDP is progressively growing, as is the role of these economies in global markets. How BRIC countries - the world's fastest developing nations - react to the current financial crisis will play an important role in reshaping markets and contributing to an altered world order after the current crisis.

Image from www.defesabr.com. 

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But still, I don't see any positive signal coming from any of the BRIC economies, except the occasional cut in rates to boost liquidity.

India is too politically weak to take any sudden measures.

China cannot possibly boost infasturcture spending more than pre-olympics.

The BRIC nation have the potential, but it take immense political will.

If USA could go Socialist, I don't know why India and China won't go more liberal :)

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