Structural problems undermining the BRICs
Having powered global growth for the past five years, the world’s largest emerging markets are now facing the reality of the challenges they face at home. While in April 2013, Cebr expected the BRIC economies to expand by 6.0% in 2014, political problems and structural challenges are holding these countries back. In our most recent forecasts, the group is expected to grow by 5.3% this year. Economic growth is expected to slow in Brazil, Russia and China in 2014. While a slight improvement in India’s prospects is anticipated, this is in contrast to significant weakness in 2013, rather than a cause for celebration.
In light of the continued geopolitical crisis between Russia and the Western world, Cebr have cut their forecast for growth in Russia this year to -0.7% – that is, we expect the economy to contract. Given the substantial capital outflows and rising likelihood of stronger economic sanctions affecting the country’s hydrocarbons sector, we expect the economy to enter recession in Q2 2014.
Although the FIFA World Cup was meant to be an opportunity to celebrate Brazil, it will not be enough to overcome the severe economic challenges the economy faces. Cebr has cut its GDP growth forecast for 2014 from 2.2% to 1.7%.
The Chinese authorities appear increasingly willing to tolerate slower GDP growth. Cebr believes growth will fail to hit the 7.5% target and forecasts expansion of 7.3% in 2014.
India’s marathon election may have ended, but the country faces a longer march to reform its economy. Relative exchange rate calm should provide the economy with some respite this year, allowing GDP growth to accelerate to 5.4% in 2014 from 4.4% in 2013. Medium-term growth is not expected to exceed 6.5% until significant progress is achieved on infrastructure and investment liberalisation.
The size of the BRIC slowdown is best illustrated by comparison to Cebr’s forecasts from April 2013. In April 2013, Cebr expected Brazilian GDP to expand by 3.7% in 2014 – in our most recent forecasts, this is cut to 2.3%. The outlook for Russia has suffered an even more dramatic deterioration: from our initial forecast of 2.5% growth in 2014, we now expect the economy to shrink by 0.7%. India’s forecast, too, has been severely curtailed. In April 2013, we forecast growth of 6.5% in 2014, but after last year’s disappointing economic performance we now believe the country’s GDP will rise by just 5.4%. Of the BRICs group, only China’s outlook has been revised upwards, from 7.2% to 7.3% after GDP growth last year surprised on the upside.
Despite the challenges facing these emerging markets, global GDP growth is expected to accelerate to 3.1% in 2014 from 2.4% in 2013 – down slightly from our January 2014 forecast that growth would reach 3.2%, as a result of the dramatic reduction in Russia’s growth prospects and the impact on the rest of Eastern Europe.
Katie Evans, economist and lead author of the report, said: “The ongoing crisis in Ukraine and growing unease across Eastern Europe have significantly reduced Russia’s economic prospects – which were already relatively weak thanks to ageing infrastructure and reliance on oil and gas. We have cut our forecasts for the second time in a month, in light of the growing risk of economic sanctions which severely curtail activity in the country’s hydrocarbons industries.”
Douglas McWilliams, executive chairman of Cebr, commented: “Although the BRICs are expected to slow this year, advanced economies will take up the mantle of global economic growth. We expect the world economy to expand by 3.1% – slightly less than our previous forecasts, due to the crisis in Ukraine and consequent drag on the Russian economy, but still the strongest growth since 2010.”
