Current macroeconomic fundamentals of BRIC countries

Abstract

U.S., China, Japan and the European Union make up 65% of the economy of the world. Of the remaining 35%, Indonesia, Korea, Mexico, Turkey, Australia, Canada, Brazil, Russia, India and Saudi Arabia are the most significant . The remaining 147 countries constitute much lower than 1% of the global economy. This is something to be kept in mind while the investment bank traders talk about the emerging markets at “exotic locations”. No matter what the Wall Street would want us to believe, these countries have a limited capacity to absorb the inflows in investment as their capital markets are few and not very significant. Against this backdrop, for marketing purposes as well as for convenience, bankers/economists like to bundle up a few countries by giving them a name based on a combination of the first alphabet of each country. This is how the BELLs, GIIPS, and the most famous of them all, the BRIC were born. Jim O’Neill of Goldman Sachs coined the term BRIC in 2001 to underline the group’s higher rates of growth and their growing contribution to the world GDP. A late entrant to this group was South Africa, thus adding the ‘S’, making it BRICS. Even so, the BRICS are very diverse in economic, political as well as social terms. In the BRIC summit of 2010 the original group invited South Africa to become a part of their group thus forming the BRICS. But more than a financial/economic force, the BRICS have tried to emerge as a political force. The BRIC Summit of September 2006, held in New York and the periodic BRICS summit held post the summit in Russia in 2009, have given the BRICS countries a say in the political matters of the world. Indeed the fact that South Africa, with the given size, GDP and the problem of unemployment, was added to their group is a telling vindication that the BRICS have evolved more as a political union rather than an economic union. The BRICS represent 40% of the total world population, 20% of the output of economies and 40% of the world Forex reserves. The BRICS can be considered to be the answer of the emerging markets to the original Group of 7 or G7, though the BRICS haven’t tried to homogenize their economies or form a common zone for free trade and lowered barriers.