Key economic engine states slow as others grow | Business| Economy and finance news from a German perspective | DW | 15.03.2012
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Key economic engine states slow as others grow

For more than a decade, the BRIC countries - Brazil, Russia, India and China - have been a key engine of the world economy. But declining growth rates mean they could be overtaken by the new kids of Southeast Asia.

A good decade ago, things were looking up.

Braziland Russia had aroused the interest of investors with their deposits of raw materials. And India and China, with their billion-strong populations, promised cheap labor and lower production costs. They were the countries that would see massive growth and they became know as the BRIC countries.

Five years after the term was coined, these rapidly developing countries were contributing a greater share to worldwide growth than the old industrial nations.

But now the engine of growth has faltered.

Post-crisis growth?

For the first time in years, China has had to bear a trade deficit. The other BRIC countries are struggling with problems of their own. Overall, their economic power is shrinking.

Maria Laura Lanzeni, an expert on emerging markets at Deutsche Bank, says the change is a matter of perspective.

BRIC leaders pose at a 2010 summit in Brazil

The dynamic quartet may rise again

"You should not compare individual years to one another, but rather the period before the crisis and after the crisis," she told DW. "Then we see that the emerging economies, especially China and India, will continue to grow dynamically."

The two countries' growth targets for 2012 have been reduced by between 7 and 7.5 percent compared to earlier estimates. Compared to developed countries, China and India's growth targets are huge. But in light of the double-digit increases that China and India saw in previous years their 2012 targets mark a severe downturn.

Increasing costs of raw materials are the seen as the cause of this decline. Both China and India have to import raw materials in large amounts.

Brazilis having to deal with dramatic increases in labor costs and inflation. A regular inflow of foreign capital is also causing Brazil's currency to appreciate.

In Russia, an almost total dependence on the country's oil reserves is slowing development. Analysts say the country urgently needs to modernize and diversify its economy. But corruption and state interference in business continues to concern investors. Russians who have money take it abroad - according to estimates, about $85 billion (65 billion euros) have left the country.

Newcomers around the corner

A world map with the BRIC countries highlighted

BRIC nations changed the face of the map

In addition, exports to industrialized nations have slowed and the BRIC nations are so far unable to make up the difference with internal demand.

But Deutsche Bank’s Maria Laura Lanzeni predicts that developing countries will still provide an important stimulus for the world economy in the future.

"It's another question," said Lanzeni, "whether these countries can really be an engine of growth. In my opinion, with the exceptions of India and China, that won't be the case for developing countries. They are not big enough yet."

Promise in Asia and elsewhere

But while the BRIC countries are in troubles, other countries are heading for the limelight - that includes Indonesia, Mexico, Poland and South Korea.

These nations already account for a quarter of worldwide growth. By 2050, that could be as high as 40 percent.

"Of course, the growth rates of these countries are very different. But they are still attractive markets with very great potential," said Lanzeni. "In some respects, they are quite developed already."

Among other countries with good long-term prospects, U.S. investment bank Goldman Sachs includes Vietnam, the Philippines, Pakistan and Bangladesh. Political instability could make development hard in at least some of these countries. The same goes for Egypt, Iran, and Nigeria.

South Africa, meanwhile, has shown disappointing growth rates. After an early period of promise, its growth rate has dropped. Growth has also contracted dramatically in Turkey. After growing eight percent within two years, Turkey grew less than three percent in 2011.

Author: Henrik Böhme/srs
Editor: Zulfikar Abbany

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