The BRICs are More Important than Ever to the Global Economy
In 2013 we are witnessing an important paradigm shift in the BRIC economies which is leading many to ask if the BRICS are becoming less important on a global scale. Since Brazil, Russia, India and China were first grouped together as the “BRIC” economies in 2001, the term has become a byword for meteoric growth rates and investment hotspots. However, what we are observing now in the BRIC countries is slower real output rates, labour forces becoming older and smaller as well as constrained capacities. Other emerging countries in places such as Sub-Saharan Africa and South East Asia are becoming more competitive and subsequently more attractive to investors. However, this doesn’t mean that the BRICs are becoming less relevant to the global economy, if anything they are set to become even more important, economically, politically and especially as a yardstick for emerging economies’ development in the long term.
Compound Annual Growth Rates in the BRICs: 2000-2010 vs. 2010-2020
Source: Euromonitor International from national statistics/OECD/UN/International Monetary Fund (IMF)
Notes: (1) Data for 2010-2020 are forecasts. (2) CAGR (Compound Annual Growth Rate) is the average rate of real growth when measured over several years.
The BRIC’s differences are becoming more apparent
Real growth rates are slowing in the BRICs but this is not necessarily a bad thing. Continued high rates of output are unsustainable in manufacturing-intensive economies, at some point someone has to consume what is being produced and this is part of the shift we’re seeing in the BRICs, particularly in China and India, a move from investment-led growth to consumption-led expansion. One of the biggest issues with the BRIC countries is that they are four very different economies and the slowdowns they are experiencing are for varying reasons and because of this, their differences are becoming even more obvious.
However, just because their growth trajectories are diverging and their fundamental differences are becoming more apparent in 2013, this doesn’t mean that the BRICs are becoming less important or relevant to the global economy. As a group of countries, they represent 41.3% of the total global population in 2013 and 20.2% of total global GDP, which will rise to 23.8% of total global GDP by 2020 in real terms. More tellingly, in 2013 consumer expenditure in the BRICs is estimated to account for 15.8% of total global consumer expenditure, but in real terms this will rise to 19.7% of total global expenditure by 2020. The group has also come together to create the BRICS (including South Africa) Development Bank which arose out of a series of BRICS summits and is set to be the first of many common institutions between the group, which will undoubtedly increase the BRICs’ gravitas, both politically and economically.
Most other emerging economies aren’t a threat to the BRICs
At Euromonitor International we have identified a group of countries, known as the “Future 7” which rivals the BRICs in terms of competitiveness, investment potential and booming consumer markets. Argentina, Egypt, Indonesia, Mexico, South Africa, Turkey and Vietnam make up this group and while their appeal to investors is obvious in some cases (Indonesia, Mexico, Vietnam), others have proven to be less resilient to the global economic slowdown (South Africa, Argentina) and others are succumbing to geopolitical tensions (Egypt, Turkey). In 2013, the Future 7 will only account for 5.7% of total global GDP in real terms and by 2020 this will have only increased to 5.9% in real terms. As a proportion of the global population the Future 7 represent 10.0% of the population which will decrease slightly to 9.9% by 2020.
There are other emerging markets such as some of the Sub-Saharan African economies and the South East Asian countries which are becoming more attractive to investors and have growing consumer markets, but these economies are still very much classed as “frontier” markets and will not overtake the BRIC economies in terms of population size, total GDP in US$ or consumer market size, any time soon. One of the things that make the BRICs so important is, quite simply, that they ARE the BRICs, the first of their kind and they have blazed a trail for other emerging markets. The BRICs were the first group of countries to open many investors’ eyes to the opportunities in the developing world and they will continue to offer opportunities to investors in the long term. It is too soon to dismiss them now, while how they progress can be used as a gauge for future emerging market development.