BRICS future bright, but lessons must be learnt: experts

The future of emerging economies like India and China is bright but they would do well to learn lessons from the economic glitches faced by US and Europe, particularly on issues of structural reform, economic experts have argued.

Experts at the 2012 Jeddah Economic Forum discussed the future prospects in light of interconnectedness of the world economies and the room for expansion, powered by demographics, domestic and foreign investment within these economies.

The experts said that there is a bright economic future for the BRICS grouping and the emerging economies but they must exercise caution over structure, governance and transparency.

Speaking at the panel, former Prime Minister of Pakistan, Mr Shakaut Aziz said that interconnectedness of the global economy has resulted in integration.

“You can’t work in isolation and the concept of decoupling simply does not exist, especially because of trade flow and investment flow,” he said.

The mature economies have not handled themselves as well as they should and that there were lessons to be learned, Mr Aziz said, adding, that there were still many challenges in the mature economies - for example in the US that showed a lack of structural reform, something normally associated with emerging economies.

“Events have shown that if you do not adapt and don’t reform, even the mature economies can get into trouble. The US is trying to improve its growth rate, but the point is this could have been avoided,” he said.

Professor Anil Gupta, Chief Advisor to the China India Institute, said that in 2000 emerging economies were only about 18 per cent of the world scene - now they are about 33-35 per cent.

“If they continue to grow by about 5 per cent, which seems very likely, by 2025 they will represent about 50 per cent of the world's GDP,” he said.

Expanding the theme of the interconnected nature of the global economy, he added, “So it’s not so much decoupling, but a rebalancing of the world’s economies.”

The interlinkages give access to markets, capital, resources and ideas and generated competition. However, two main risks from integration were systemic or catastrophic risks and the nodal nature of the member countries, he said.

“When a system becomes more complex and interconnected, the likelihood of catastrophic failures goes up. A glitch in the corner of the system has the capability to bring the whole system down, for example the 2008 financial crisis,” Mr Gupta said.

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