The BRICS are continuing their summer crumble. Tumult in credit markets and a roller-coaster ride in emerging market currencies has upended growth expectations and sent a number of emerging economies tumbling. Now even the IMF is beginning to face up to reality. In a confidential note, the IMF backtracked on its optimistic projections for emerging markets, noting that “momentum is projected to come mainly from advanced economies, where output is expected to accelerate.” According to the FT:
[T]he IMF now expects global growth to remain subdued with a recovery in the US, Europe and Japan offset by significantly worse prospects in many emerging economies. Fund staff have revised down their near-term growth projections for emerging economies, placing them 2.5 percentage points below 2010 levels, “with Brazil, China and India mainly accounting for this growth slowdown”, the note said.
For years, analysts have tooted the refrain of the rise of China and the BRICS at the expense of the developed world. Yet the slowdown in China, an economic crisis in India, and looming trouble for Russia all cast serious doubt on all the initial rosy predictions. While those countries did produce remarkable growth for decades, they were largely playing catch-up to the United States, Europe, and Japan. The BRICS, as well as other emerging markets like Turkey, still must wrestle with very serious political and social issues at home. Until those countries can establish robust and fair legal regimes and craft stable and durable political systems, talk of their ever matching the West will remain just that: talk.
The IMF’s economists are also struggling to cope with several other forecasting errors. Back in April, the Fund was chiding the United States and Britain to delay deficit reduction in favor of free-spending stimulus plans. Here, too, the IMF is admitting that “private demand remains relatively robust in the face of fiscal tightening.”
We hope facing up to the real situation in the BRICS will be a prelude to steps promoting the kinds of structural reforms that would put them back on the right track. Sustainable growth in emerging economies would go along way toward driving job creation and prosperity in the developed world as well.
[BRICS leaders image courtesy of Blog do Planalto]