Global Divide

Crumbling BRICs

  • Why it matters

    Why it matters

    • Although the BRIC countries are still fueling global growth, their economic perfomance is far from equal.
    •  
  • Facts

    Facts

    • China and India remain attractive investment options with strong growth predicted.
    • The Standard & Poor’s rating service recently downgraded Russia’s credit rating to junk level.
    • Emerging economic powers such as Mexico and South Korea are poised to push Russia and Brazil aside.
  • Audio

    Audio

  • Pdf

 

BRICS Ikon Images
Two going up, two going down, as the BRICs separate. Source: Ikon Images

 

 

Fourteen years ago, Goldman Sachs Chief Economist Jim O’Neill strung together the first letters of the four fastest-growing global economies, creating a term that gained geopolitical significance. BRIC was the acronym for emerging nations out to catch up with the West: Brazil, Russia, India and China.

Since then, the once promising quartet has disintegrated into a pair of vastly different duets. China and India remain on course, but Brazil and Russia are plummeting downwards as the tectonics of economic power shift again.

Plunging oil prices, capricious currency valuation shifts and political fallout have rearranged the order of the globalized economy, allowing other nations to push ahead.

The Standard & Poor’s rating agency downgraded the Russian credit rating to junk level for the first time in a decade, symbolizing its decline. The ruble exchange rate has dropped by half while sanctions by the Western community have thrown the state backwards, exposing its structural weaknesses. Even Moscow admits 2015 could be worse than the crisis year of 2009.

As a “junk country,” serious repercussions await Russia, said Mohamed El-Erian, chief economic adviser at Munich-based Allianz. “This step will be followed by further downgrades of Russian banks and corporate bonds.”

Although Brazil is somewhat better off, the euphoria about its status in the world has evaporated. Inflation is running at almost seven percent while oil companies are under pressure. The state-owned company Petrobras, which represents a tenth of the industry, is being shaken by a corruption scandal.

The International Monetary Fund predicts 2 to 3 percent annual growth up to 2019 for Brazil and Russia. That’s not enough to keep pace with larger economic players.

Want to keep reading?

Subscribe now or log in to read our coverage of Europe’s leading economy.