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2015 has started more tumultuously than expected, driven on the whole by the low oil price which has ramifications globally – none less so for Brazil, Russia, India and China. In 2015 India will see a bright performance, whilst Russia will see its economy shrink. Brazil will remain lacklustre at best and China will continue to slow.

Real GDP growth in BRIC in 2014 and 2015

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Source: Euromonitor International from IMF/OECD/National Statistics

Note: Data are forecast. Real GDP growth in Brazil in 2014 was estimated at 0.0%.

 

Brazil: Ideology gives way to pragmatism

Brazil slipped back into recession in 2014, and on an annual basis is expected to have seen zero growth as a result of weak commodity prices, low growth in major trading partners, drought, election uncertainty, and declining investment.  This year we expect real GDP growth to come in at just 0.5% – a poor performance by any standards. Inflation will remain high, private consumption subdued and unemployment will climb. Brazil’s continued reliance on commodity exports will put pressure on the current account.

The government have reacted with a more business-friendly attitude than expected. They have launched some austerity measures including social welfare and pension reform and monetary policy is tightening. These reforms are a risk politically as they alienate the party’s voter base and it remains to be seen if the government will continue on this path in the face of voter alienation.

Real GDP Growth: 2008-2015

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Source: Euromonitor International from IMF/OECD/National Statistics

Data for 2014 and 2015 are forecast

Russia: A perfect storm

The Russian economy had a dire 2014 and this year looks set to be even worse with the economy expected to shrink by 3.8%. First and foremost, the Ukraine crisis overshadows the Russian economy and the weak oil price is an equally grave concern. The economy remains over-reliant on the oil and gas sector – with 71% of exports in 2014 from mineral fuels. This in turn puts the government budget under pressure – the finance ministry has estimated that it would lose $45bn in revenues this year if oil continued to average about $50 a barrel. The flow-on effects from the oil price include a weak currency, rising inflation and a collapse in business and consumer confidence.

The oil price shines a light on Russia’s domestic problems. Investment is low and has been declining, the country faces a demographic challenge as the population ages rapidly and grows anaemically at best. Productivity is low. The economy is clearly over-dependent on the oil and gas sector but a lack of investment leaves Russia’s non-oil sector in a weak position to compete in global markets.

Russian Exports: 2000-2014

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Source: Euromonitor International from United Nations (UN), International Merchandise Trade Statistics

 

India: Gradual gains

In 2014 the Indian economy surprised on the upside and expanded by its fastest rate since 2011, helped by government spending and business investment. We expect this performance to be built upon in 2015 with real GDP growth forecast at 6.6%. As an oil importer, the weak oil price is aiding the economy and the central bank has been able to cut interest rates this month. Business confidence remains high – although there is an awareness that structural reforms to the economy are needed for growth momentum to be sustained.  This confidence and these reforms should spur a much-needed increase in investment in 2015. On the downside, India will continue to struggle with a weak external sector born out of a lack of competitiveness and the budget deficit remains a concern.

Quarterly Real GDP Growth in India: Q1 2012 – Q4 2015

Source: Euromonitor International from IMF/OECD/National Statistics

Note: Data from Q4 2014 onwards are forecast. Data are seasonally-adjusted

 

China: Continuing to adapt to the “New Normal” of slower growth

With growth in 2014 at its slowest pace since 1990, this year will be another when the hard landing debate continues. At Euromonitor, we do not foresee a hard landing in China in 2015, or indeed beyond. Rather we see a continuing slowdown with real GDP growth forecast at 7.1% this year.

The housing market will continue to rebalance with prices continuing to fall – although at a slower pace. Industrial production will continue to remain weaker than in past years – due to weak domestic demand, particularly in sectors related to construction, and also due to problems in competing against lower-wage manufacturing rivals.

Inflation is decelerating, raising the prospect of outright deflation. Consumer prices in December, at 1.5% year-on-year, were at their lowest since January 2010 – a result of a combination of low commodity prices and excess capacity. The latter is the real issue and it cannot be resolved overnight. The government has been able to slow activity in the shadow banking sector which has in turn slowed down credit expansion. This is crucial in view of China’s over-capacity.

The key concern for China is that the government continues on a reform track, and implements policies which will place the economy on a sustainable growth path – rather than risking asset bubbles in an effort to push headline growth up. The Chinese premier, Li Keqiang, alluded to this in his speech at the World Economic Forum in Davos, so we do not expect to see any large-scale stimulus in 2015.

Gross Fixed Capital Formation and Private Final Consumption Expenditure in BRIC: 2014

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Source: Euromonitor International from national statistics/Eurostat/OECD/UN/IMF

 

Watch our on-demand webinar: The Global Economy in 2015 to learn more.

 

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