• A
  • A
  • A
  • ABC
  • ABC
  • ABC
  • А
  • А
  • А
  • А
  • А
Regular version of the site

Economic retardation in the BRICS countries: reasons and consequences for the World economy

Priority areas of development: economics
2016
The project has been carried out as part of the HSE Program of Fundamental Studies.

Goal of research: to identify the causes of the slowdown in the BRICS economies and the consequences of this slowdown for the World economy and the countries of the BRICS group themselves.

Following tasks are implied by the goal of research:

  • analysis of the dynamics of the main economic and financial indicators of BRICS countries;
  • identification of the causes of the slowdown of BRICS economies, accentuation of the structural and conjunctural factors;
  • estimation of the “BRICS factor” within global and Russian economic conjuncture forecasting.

Methodology: the identification of the factors of growth slowdown in BRICS economies was made with the use of statistical and econometric techniques.

Empirical base of research: open statistical information from national sources (central banks, ministries of finance, of economy etc.), as well as the resources of the UN, IMF, World Bank and other international organizations, international databases of scientific publications were used as the information base for the study.

Results of research: the study outlined the position of the BRICS group and each of its member countries in the global economy. It shows that currently the role of China is particularly important. The size of Chinese economy increased by nearly 11 times from 1990 to 2015. In 2015 this country contributed 57% to the world production of cement, 55% to primary aluminum, 42% to iron ore, 31% to cars etc. The share of China in the World GDP at PPP in 2015 reached 17.2%; in 2014 China outperformed the United States on this indicator and became the largest economy in the world. At the same time, in recent years China's GDP growth rate began to slow down, largely due to the decrease of the population migration from rural to urban areas, and therefore its involvement in a more productive work (creating more value added) and generation of additional customer demand.

The potential for the further growth of the BRICS group is largely attributed to the prospects of the Indian economy, where reasonably good conditions for the dynamic economic development exist, since the process of urbanization here is still very far from completion (in 2015 the urban population amounted to only one-third of total population, 2-2.5 times less than in other BRICS countries). The rapid growth of India will be also supported by the low base effect, since India is the only one of the BRICS countries which is still in the poorest group (with GDP at PPP of $6 000 per person it is included in the second decile from the bottom). On the other hand, economic growth in India is unlikely to be explosive, since majority of population is far from fully accepting the values ​​of the capitalist economy and therefore is not readily involving in the market production relations. Another reason is the large share of agriculture in the GDP structure (it is still subject to significant fluctuations due to the adverse weather conditions).

Due to the far-reaching involvement of China in the world economy, it is already able to affect the global environment and contribute to its stabilization (however the medium term destabilization scenario also seems to be quite probable). The further involvement in the world trade and international capital movements may allow India to affect the global economic situation, which could start to vary depending on the level of economic activity in India. Other BRICS countries, mostly surpassing China and India in the terms of wealth (GDP per capita in PPP terms), are at the same time significantly behind of them in terms of the domestic markets size, especially the potential ones. For this reason alone, Brazil, Russia and South Africa are dependent on the world market rather than are able to influence it. In addition, these economies are too heavily dependent on the world level of commodity prices (and this dependency is unlikely to be eliminated anytime soon), and some of the monetary authorities decisions have negative side effects. Moreover, these countries are subject to significant non-economic risks: in Brazil it is the political instability associated with the sensational cases of top officials corruption; in Russia it is a regime of sanctions and anti-sanctions enhancing autarkic tendencies; in South Africa – interracial frictions (which are for the moment kept within acceptable limits).

Nevertheless, the role of these countries for the world economy should not be underestimated. Not to mention the fact that in terms of military-political relations Russia remains the world's superpower and its actions in this field are quite strongly influencing the situation in the world; in purely economic terms, Brazil, Russia and South Africa are powerful regional nations, which are tied to the economies of many neighboring countries. Consequently, one cannot discard the possibility of local "domino effects", when the deterioration of the conditions in the leading regional country negatively affects the trade-partner economies. The possibility of a global "domino effect", when a recession in one or more of these countries (Brazil, Russia and South Africa) will make international investors more cautious towards all emerging markets, entailing a deterioration of the global conjuncture (as, for example, during the crisis in South-East Asia in 1997-1998) is less likely. The experience of 2015-2016, when Brazil and Russia were in recession, and South Africa was stagnating, indicates that the impact (even joint) of these countries on the global economy is not sufficient to noticeably slow down its growth.

Level of implementation, recommendations on implementation or outcomes of the implementation of the results: the practical significance of the work lies in the potential to use the obtained results in the development of recommendations to the Government and the Bank of Russia, as well as in the forecasting dynamics of World and Russian economies.

Results are applicable in informational, expert and analytical support of the Government and the Bank of Russia in the fields of economics and economic policy matters.

Publications:


Smirnov Sergey, Avdeeva D. BRICS in the Global Economy, in: Business Cycles in BRICS / Ed. by Smirnov Sergey, A. Ozyildirim, P. Picchetti.; Ed. by S. V. Smirnov, A. Ozyildirim, P. Picchetti. Springer, 2018. doi Ch. 2. P. 9-28. doi