Goldman Sachs economist Jim O’Neill famously coined the phrase “BRICs” in 2001 to describe the bloc of emerging markets — Brazil, Russia, India and China — whose growth was so explosive that their markets were on their way to eclipsing America’s. In the December issue of Foreign Affairs, Ruchir Sharma, head of Morgan Stanley Investment Management’s emerging markets desk, argues that the miracle of the BRICs is over.
…the new normal in emerging markets will be much like the old normal of the 1950s and 1960s, when growth averaged around five per cent and the race left many behind.
BRIC growth was a fluke, Sharma says, fuelled by the waning of the wave of economic crises in the late-90s and subsequent “global flood of easy money.”
…there is a lot less foreign money flowing into emerging markets. The global economy is returning to its normal state of churn, with many laggards and just a few winners rising in unexpected places.
The main culprit is China, whose population “is simply too big and ageing too quickly” to sustain its breakneck growth, he says. We can instead expect a “three-to-four per cent slowdown” there.
But developed countries are slowing down too. And the combined effect of this purchasing pullback will slam export-driven economies — namely, the rest of the BRICs (which Sharma says also encompasses Malaysia, Mexico and Taiwan).
So what comes after BRICs?
Sharma says emerging nations are now pretty much locked into separate league tables, and will not be able to find enough growth to jump to a higher one.
Among countries with per capita incomes in the $20,000 to $25,000 range, only two have a good chance of matching or exceeding three per cent annual growth over the next decade: the Czech Republic and South Korea. Among the large group with average incomes in the $10,000 to $15,000 range, only one country — Turkey — has a good shot at matching or exceeding four to five per cent growth, although Poland also has a chance. In the $5,000 to $10,000 income class, Thailand seems to be the only country with a real shot at outperforming significantly.
Any “stars” that we see now will come from the bottom — where per capita incomes are under $5,000: Indonesia, Nigeria, the Philippines, Sri Lanka, and various contenders in East Africa.