In a new interview with Barron’s Leslie Norton, Jim O’Neill discusses the European debt crisis, China, the Federal Reserve and the prospect of QE3, and equity valuations.
O’Neill, the Chairman of Goldman Sachs Asset Management, is the economist known for coining BRICs, the acronym for the major growth markets that will driving global GDP. The BRICs consist of Brazil, Russia, India, and China. O’Neill also considers Indonesia, Turkey, South Korea, and Mexico to be on the same level as the BRICs.
Norton asked O’Neill about these 8 markets:
“In the current decade, their combined GDP will rise by $16 trillion, about double that of the U.S. and euro area put together. Why do people call them emerging markets when they are driving the world economy? That’s why I call them growth markets. You can’t think of emerging markets the same way people did in the past.”
Regarding the impact of the European debt crisis, O’Neill said this:
“The most important place to the growth markets and the rest of the world is China…Turkey is the most vulnerable to the European banking problems. But this is a North Atlantic crisis, not a global crisis.”
“In the next 12 months, the dollar value of the four BRIC economies will increase $2 trillion. That will create another Italy, and that wouldn’t happen if those countries’ inflation rates kept rising. The most important news recently was the Chinese CPI [consumer-price index]. It is very interesting that the Chinese stock market had another good rally. If China can’t get inflation back down to 4% by the first quarter, then sustaining growth of between 7% and 8% or more would become increasingly difficult. Their problem this year has not been the European debt crisis. The fact that inflation appears to be turning in a number of these places is obviously good news. Oddly, the European crisis is a bonus, because it helped bring commodity prices down.”
The full interview Leslie Norton is excellent and offers a lot more colour. Read it at Barron’s.