Building a Wall of BRICs to Keep the Global Recession at Bay

The best hope to keep the global economy growing may be people like Wei Yufang. A peasant who farms a small plot beside the mud-brown Huaihe River in central China, Wei has a modest dream: to buy an air conditioner to give her family relief from the dusty heat that each summer envelopes Xiaogang (Little Hill) village in Anhui province.With economies from the US to Japan in recession, Wei and the other 2.8 billion people in Brazil, Russia, India and China may provide the consumer demand needed to counter the slump.Jim O'Neill, the Goldman Sachs economist who in 2001 coined the acronym BRIC from the initials of the four big emerging economies, says the faster growth investors have come to expect from these countries will survive this crisis. Mr O'Neill, who is based in London, says the citizens of the BRIC nations are poised to spend more. "The BRIC consumer is going to rescue the world," he says.China's leaders are doing their part. The massive 4 trillion yuan (€464bn) stimulus plan unveiled on November 9 signaled the intention to spur domestic consumption as developed economies buy fewer Chinese exports. The first-ever meeting of finance ministers from the BRIC nations, a few days earlier in Sao Paulo, charted a newly assertive role."The crisis revealed weakness in risk management, regulation and supervision in the financial sectors of some advanced economies," the ministers said. It also showed the resilience of the BRIC economies, they said."This is a global crisis and demands global solutions," says Brazilian President Luiz Ignacio Lula da Silva. "The participation of the developing world is essential."Chinese President Hu Jintao said in Washington in November: "Steady and relatively fast growth in China is in itself an important contribution to international financial stability."China's two-year stimulus programme calls for spending on housing, roads, railways and airports, tax deductions for businesses that invest in new equipment, and subsidies for farmers.Chinese ConsumersEqual to about 16pc of the country's annual gross domestic product, the plan dwarfs the $168bn stimulus in the US in the spring, which was about 1pc of GDP. In the weeks since the Chinese effort was announced, US president-elect Barack Obama has said he favours a larger stimulus for the US economy; his aides have said it could top $600bn.While Chinese consumers, as a group, still don't overshadow their American counterparts in total spending, their outlays are growing. China's retail sales jumped 22pc in October. Consumer purchases in the US, by contrast, dropped in the third quarter for the first time in seven years."Since October 2007, the Chinese shopper alone has been contributing more to global GDP growth than the American consumer," Mr O'Neill says.He had predicted that the BRIC economies would account for 10pc of global economic output by 2010. Already, they comprise more than 15pc.'Hit the Hardest'Forecasters at Merrill Lynch share the enthusiasm. "Can BRICs help stabilise the global economy" Merrill's global economics team asked in an October report. "We think so."This doesn't mean that the downdrafts being felt by the BRIC nations don't hurt. "A year ago everyone was so optimistic about emerging markets," says Marc Faber, who manages $300m in Hong Kong."Now the global economy is going into a severe recession and it is the most volatile economies -- the emerging markets -- that are being hit the hardest," says Mr Faber, publisher of the 'Gloom, Boom and Doom Report'.The BRIC countries' stock markets have seen big swings. The benchmark index in Shanghai has been down as much as 70pc from its high, while Moscow's stock market has fallen as much as 75pc from its peak. At its peak in May 2008, Brazil's Bovespa Index had quadrupled in four years. By late October, the index was down 60pc from that high.The question is whether a deeper collapse is coming -- or a turnaround. Mark Mobius, the Singapore-based money manager, says BRIC markets are a buying opportunity. "We're like children in a candy shop," says Mr Mobius, who oversees $30bn in emerging-market equities at Templeton Asset Management Ltd.In early November, BRIC nations held 41pc of total global foreign exchange reserves. (© Bloomberg)

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