Falling BRICs

BRIC stands for the growing economies of Brazil, Russia, India, and China.
BRIC stands for the growing economies of Brazil, Russia, India, and China.

 

The BRICs countries are crumbling amid the strong dollar and dropping oil prices. Concerns over a default are on the rise in Russia, and high inflation and slow growth is dragging down Brazil. China is struggling to attain 7 percent growth. The situation is posing concerns on the export-oriented economy of Korea, too. Demand is increasing for the diversification of export destinations and the expansion of domestic consumption.

According to the International Monetary Fund (IMF), the ratio of the BRICs' countries GDP to the global total GDP increased from 8.2 percent to 19 percent between 2001 and 2011, but has stagnated at around 21 percent for the following three years.

The default crisis of Russia witnessed in the late 1990s is repeating itself these days. The price of crude oil, its number one export item, is plummeting, while more than US$100 billion has flowed out of it this year alone since the Western sanctions. The credit rating of Brazil has been dropped to BBB-.

Chinese President Xi Jinping recently declared that China’s rapid growth has come to an end. Experts are predicting that China’s annual economic growth rate is likely to remain at around 7 percent for a while. India has lost steam since 2011. The inflation rate is as high as 7 percent and the national debts are going up. Prime Minister Narendra Modi, however, is trying to turn the tables. The Wall Street Journal recently reported that India is the only BRIC country showing at least some growth nowadays.

The rapid growth of the four countries had been led mainly by the respective governments, before coming to a halt due to the widening income divide and slow spread of national wealth to the household level. The skyrocketing sovereign debts attributable to excessive government subsidies and the lack of economic structural reform have compounded the problem, too. According to the Economist magazine, their government-led economic growth models are not effective any longer.

The current situation is affecting the Korean economy as well. According to the Korea International Trade Association, the ratio of Korea’s trade with the BRICs to its total international trade had jumped from 15.7 percent to 26.4 percent between 2002 and 2010, but remained at 26.5 percent until last year. The inter-regional trade volume barely increased from US$280.5 billion to US$284.4 billion between 2011 and 2013.

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