The emerging markets, including BRICS (Brazil, Russia, India, China, and South Africa) are suffering.
On Nov 8, 2016 when Donald Trump was elected president of the United States, the stock market took off in anticipation of a much stronger economy under his administration. The U.S. dollar got stronger as well.
While this is good news for the U.S., his policies may make things worse in the emerging markets, including the BRICS (Brazil, Russia, India, China, and South Africa), which are already suffering.
Prior to 2008 the BRICS were the place for companies to invest in.
The belief was that they would remain strong and grow for the foreseeable future. But the worldwide financial crises changed all that. Over the past eight years most economies have struggled to show economic growth – with some slipping into recession. Now most of the BRICS are crumbling under their own weight and struggling to find their footing.
BRICS GDP Count
A look at the GDP accounts and growth over the 2010-2015 period highlights the problem that the BRICS have been dealing with.
Three of the five countries have seen their GDP shrink over the period while China and India have experienced slower growth, but growth nonetheless.
But the numbers do not tell the full story.
The Humpty Dumpty Syndrome
The world has changed and the economies are now considerably different for the BRICS than they were a few short years ago.
Brazil is in the middle of a major internal collapse with the government mired in corruption charges, major companies collapsing, and people wondering if and when the downward spiral will end. Current estimates are that the country could be in for a "lost decade" before it gets back on track.
Russia remains entrenched as a commodity-based economy and its well-being is highly linked to the price of oil, which has collapsed since 2008.
President Putin has done nothing to change that trajectory but has involved the country in various wars and skirmishes, which consume precious capital. There is no reason to believe that there will be any change of direction under the current leadership.
China continues to expand but at a lesser rate, one which the government is not happy with.
The target is 7.0 percent but the true growth rate is dropping and many experts believe that the true GDP is in the 3.0 – 4.0 percent range. The gurus reason that if you look at physical indicators such as rail car loadings, truck loadings, cement consumption, steel consumption, exports, natural gas consumption, and electricity consumption, none of those are consistent with 6.8 or 6.9 percent growth rate.
Moreover, priming the pump is not yielding the results that it used to - far less bang for the buck.
Plus the cost of labor has risen and China is no longer the low cost provider – in fact, some Chinese firms are offshoring work to neighboring countries. Factories are closing and many people are finding it difficult to find work.
President Xi Jinping is challenged by corruption, a deteriorating environment (air pollution, soil erosion, and a falling water table), a huge debt overhang, industrial overcapacity, and a demand for energy imports.
The easy growth years are over and the hard work of getting the economy to run smoothly and efficiently will take years. All this is reflected in slowing GDP and a weakening Yuan, which could continue to slide for years.
Next- India, South Africa and the Bottom Line
About the author
Mr. Braunstein serves as Chairman/CEO and Executive Director of Research at the Robert Frances Group (RFG). In addition to his corporate role, he helps his clients wrestle with a range of business, management, regulatory, and technology issues.
He has deep and broad experience in business strategy management, business process management, enterprise systems architecture, financing, mission-critical systems, project and portfolio management, procurement, risk management, sustainability, and vendor management. Cal also chaired a Business Operational Risk Council whose membership consisted of a number of top global financial institutions.