The BRICs Remain in the Fast Lane

Published:2011-08-06    Source:GS Global ECS Research

The BRICs continue to advance up the ladder of global economic prominence. Their strong growth performance during the global economic crisis has accelerated this trend. All of the BRICs have now reached, or are rapidly approaching, the range of the G7 countries in terms of the total size of their economies. However, living standards in the BRICs continue to lag far behind the developed world.

In recent years, the BRICs have continued their steady climb up the global rankings of economies by size, as measured by US Dollardenominated GDP. 2009-10 proved to be watershed years in this regard. China moved past Japan to become the world’s secondlargest economy. Brazil passed Spain and Italy to become the seventh-largest economy, and is now fast approaching the UK. India and Russia both jumped over Spain to move into ninth and eleventh positions, respectively. Notably, the BRICs’ positions look even more favourable if we instead compare countries’ GDP using PPP exchange rates. While we have long expected the BRICs to catch up with the majority of developed countries eventually, these shifts are happening even quicker than we envisaged.

The recent reshuffling in country rankings towards a more BRIC-heavy top ten is due both to the stronger growth performance during the crisis and recent currency appreciation, although the importance of each factor varies across countries. In China and India, stronger growth has been key. In Brazil, the surge in USD-denominated GDP growth is largely due to a nearly 50% real appreciation in the Real in 2009-10. In Russia, the picture has been more mixed on both fronts.

While all of the BRICs will likely soon be among the ten largest economies, living standards continue to lag far behind the developed world. Encouragingly, we expect China and India to continue to register among the fastest GDP per capita growth rates in the world, but their low starting bases mean that convergence to developed market levels is still a long way off.