BRICS: Down but not out

BRICS remains largely heterogeneous in character with differences in socio-political-legal frameworks. But its strength is amplified by the fact that these countries together account for 43 per cent of the world’s population, around 18 per cent of its GDP and 40 per cent of its currency reserves, estimated at around a trillion US dollars.

The basic precept under which BRICS as a formal association was forged was to primarily counter the hegemony of the West and create a formidable economic and political force in the new economic order However, this objective came under significant clout after the US Federal Reserve expressed the possibility to taper their bond purchases.

Though most of the economies today, including BRICS, are well prepared after the initial signals given by the Federal Reserve last summer, they still remain vulnerable from the threat of massive capital outflows from emerging economies.

While it is quite apparent that these countries will not start growing so soon at the rate they did before the Lehman crisis, given the size of these economies and its influence in global trade, they are poised to be a force to reckon with. It may be observed that the export share of G-8 countries in world exports experienced a negative CAGR of 3 per cent as its share globally declined from 47 per cent to 34 per cent during 2001 and 2013. On the other hand, the share of BRICS in global trade expanded exponentially from a diminutive 8 per cent in 2001 to 18 per cent in global exports in 2013, growing at a CAGR of 7 per cent.

However, given the current state of affairs in these five emerging economies, in order to succeed in boosting and sustaining growth, BRICS will need to deal with issues in their own backyards such as capacity constraints, inflationary pressures, including effects of financial markets volatility on capital flows, and the exchange rate.

According to the latest IMF data, four of the five BRICS economies witnessed a decline in GDP during 2013 as compared to 2012, with Brazil being the only one exhibiting an increase from 1 per cent to 2.3 per cent. On the inflation front, while China which showed a moderate inflation of 2.6 per cent, Brazil displayed 6.2 per cent, Russia 6.8 per cent, South Africa 5.8 per cent, and India the highest inflationary figure of 9.5 per cent.

The exchange rate exhibited double digit depreciation with the exception of China which saw an appreciation of 0.9 per cent at the end of April 2014 vis-à-vis the corresponding period in 2013. The South African rand exhibited the highest depreciation at 14.6 per cent, the Russian rouble and Brazilian real witnessed a depreciation of 12.8 per cent and 10 per cent respectively, whereas the Indian rupee depreciated by 10.5 per cent during the same period.

Though Russia will be impacted due to the rift with its neighbours and sanctions from the West, investors look forward with anticipation for an economic recovery following the elections in India and Brazil.

It is hard to overlook the prominence of the BRICS economies which accounts for 55 per cent of the output of emerging and developing economies.

Although these countries may have been injured following a rough run during the last year or so, they are nevertheless resilient and have the innate capability to play a greater role in economic diplomacy whilst their interests coincide with those of a large pool of developing countries.

The proposed BRICS Development Bank is further expected to strengthen this bloc by creating an alternative financial supranational institution for emerging economies, which will not only further trade and investment but will also help in mitigating the spillovers of monetary decisions taken by the developed West.

The writer is an economist with the Export-Import Bank of India

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