How Solid are the BRICs? (Part 1)
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January 15th, 2008 by AdvisorAnalyst
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According to IMF research, about 50% of global GDP growth now originates from BRIC countries. Incremental growth in demand for oil by India and China is driving the price of crude higher. Same for food prices. This is great for oil producers and agriculture commodities and stocks.
It may also prove to be beneficial as a needed and market driven cooling mechanism for higher-than-expected growth in the BRIC (Brazil, Russia, India, China) and other emerging markets, which are driving the average higher for world economic growth. Just how solid are the BRICs?
As BCA points out in The Oil Tax, higher oil prices have the same effect as rising “taxes” (globally), an organic form of economic tightening and will dampen the hopes of central banks as they move to stimulate the world economy with interest rate cuts. If oil prices continue higher, central banks will have to become more aggressive in order to stimulate economic growth. This is the problem in industrialized countries, but NOT in emerging markets.
As we pointed out in Rx for China, a US recession may be just what the doctor ordered, in the form of an “imported soft landing”. China, for example, has been trying to tame growth for years with their own monetary tightening. Rising oil prices, which are an economic dampener for industrialized net oil-consuming countries, may provide the cooling of growth that emerging countries have been wanting to achieve.
As the central banks of the industrialized world (Fed, ECB, BOJ) move to provide economic stimulus in the form of more interest rate cuts, the ensuing monetary liquidity spillover makes for an abundance of cheaper capital, flooding emerging markets with investment, as investors look for growth offshore.
According to BCA, the decoupling of emerging markets is expected to persist into 2008 as a result of these factors in tandem with robust domestic fundamentals. For the BRIC economies, and other emerging markets, this is potentially very promising. In part 2 (to follow) we will take a look at some of the economic and market fundamentals for the BRIC bloc, so stay tuned.
Read on: The following 4 articles highlights growth and inflationary concern in BRIC countries.
Brazil Economists See Faster Inflation, Higher Rates
http://www.bloomberg.com/apps/news?pid=20601086&sid=ag_GSEXHPVhQ&refer=news
Russian inflation 11.9 pct in 2007 – official data
http://www.forbes.com/markets/feeds/afx/2008/01/09/afx4510431.html
RBI’s rate hiking spree may halt http://economictimes.indiatimes.com/News/News_By_Industry/Banking_Finance_/RBIs_rate_hiking_spree_may_halt/articleshow/2703424.cms
China’s nerves on edge over inflation
http://uk.reuters.com/article/businessNews/idUKPEK22115220080113
Read more from the author/contributor here.
Tags: Agriculture, Agriculture Commodities, Banks, Blog, Bloomberg, Brazil, BRIC, Bric Countries, BRICs, Central Banks, China, Commodities, Dampener, ECB, Economic Stimulus, Economists, Economy, Emerging Market, Emerging Markets, Fed, Food prices, GDP, GDP Growth, Global Gdp, GSE, Imf, Incremental Growth, India, India China, Industrialized Countries, inflation, Interest Rate Cuts, Investment, liquidity, Markets, Miscellaneous, oil, Oil Prices, Oil Producers, Oil Tax, Recession, Rising Oil Prices, risk, Russia, Spillover, UK, World Economy
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