Asia’s Next BRICS?


In a recent announcement, global credit insurer Coface Group said the original BRIC economies of Brazil, Russia, India and China would post below-average growth in 2014, down 3.2 percentage points on their average for the previous decade.

However, a new wave of 10 emerging economies with accelerating economic growth, solid production prospects and financing to support expansion could eclipse them, it said.

According to the France-based company, Colombia, Indonesia, Peru, the Philippines and Sri Lanka placed in its first group of star performers, with sound business climates similar to current BRICS. Bangladesh, Ethiopia, Kenya, Tanzania and Zambia made up its second group, which while having potential faced more difficult business environments.

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“Naturally, it will be more difficult for the second group of countries, who could take longer to fully realize their growth potential. However, their business environment problems are relative: in 2001, the quality of governance in Brazil, China, India and Russia was comparable to that of Kenya, Tanzania, Zambia, Bangladesh and Ethiopia today,” said Julien Marcilly, Coface’s head of country risk.

The new grouping benefits from inflation rates around 2.8 percentage points lower than those facing the original BRICS, as well as having less public debt, averaging 40 percent of gross domestic product (GDP) compared to 54 percent for the then BRICS, as first identified by Goldman Sachs economist Jim O’Neill in 2001.

Nevertheless, Coface pointed to weaknesses in its “new emerging” group, including a lower share of the world population, comprising 11 percent compared to the BRICS’ 43 percent in 2001. They also have smaller economies, representing only 70 percent of the BRICS in 2001, while running average current account deficits of around 6 percent of GDP compared to the original BRICS’ surpluses.

“With growth in developed countries being structurally weaker today, the ‘new emerging’ countries may benefit less from trade towards these countries than did the BRICS in the 2000s. Their growth rates will depend more on their domestic markets and on exports to other emerging markets,” Marcilly said.

BRICS ‘Running Out Of Steam’

Coface said the BRICS’ race to catch up to their developed rivals had been “running out of steam since 2010, with growth of the big emerging economies slowing noticeably since early 2013.” It pointed to China’s slowdown to an expected 7.2 percent expansion in 2014, down from its 10.6 percent annual average between 2000 and 2011.

Similarly, it said India would grow by 5 percent this year compared to 7.8 percent between 2000 and 2011, with Russia achieving 1 percent versus 4.8 percent, Brazil 2 percent against 3.8 percent, and South Africa 2.5 percent versus 3.6 percent over the same timeframe.

Coface said the BRICS’ reduced growth stemmed from both cyclical and structural factors, confirming the existence of a “middle income trap.” Under this trap, growth in emerging economies starts slowing by 2 percentage points a year when per capita income reaches about $17,000.

The new grouping identified by the insurer adds to the acronym soup that has sprung up since the BRICS, including O’Neill’s “Next-11” comprising the most populous countries after the BRICS; economist Robert Ward’s “CIVETS,” consisting of Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa; and BBVA’s “EAGLES,” comprising Brazil, China, South Korea, India, Indonesia, Mexico, Russia, Taiwan and Turkey.

Western Orientation Favored

While Asia features in the new wave, this year’s high flyers are expected to have a more traditional orientation.

In a research note released Friday, ANZ Research said Asian economies with greater exposure to Western markets compared to China would outperform in 2014, “a grouping that includes most of the ASEAN economies but Malaysia and the Philippines in particular.”

The bank said regional economic activity would pick up speed over the remainder of the year, following a “loss of momentum in both the U.S. and China in the first quarter.”

“Our core view is still formed around the view that most of South and Southeast Asia will be bumping up against new and lower potential growth rates over the course of 2014-15. Coupled with idiosyncratic domestic determinants such as electricity prices and subsidy rationalization, inflation pressures will emerge over a varied period in the second half of the year, or for some countries in the first part of 2015,” it said.

“We expect the Philippines will be the first central bank to tighten policy, with Malaysia following a quarter after. The manifestation of a forward-looking deterioration in the inflation outlook is likely to be the key trigger for both central banks to start winding back either negative or very low real rates. Risks are now skewing to both India and Indonesia having to move to yet higher policy rates in 2014-2015 to keep inflation contained.”

Coface’s predictions add to the earlier gloomy prognosis from “Dr Doom,” economist Nouriel Roubini, who said the BRICS were “falling back to reality.”

For Asia though, the region’s prominence among the next expected star performers signifies its continued emergence on the global economic stage.

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