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SAO PAULOFormer Goldman Sachs Asset Management Chairman Jim ONeill, who coined the BRIC acronym describing four burgeoning emerging market countries, stands by the term he invented more than a decade ago, but admits that three of the countries have disappointed him in recent years.
The acronym created in 2001 groups Brazil, Russia, India and China, and has become a reference for a perceived shift in economic power toward developing economies.
If I were to change it, I would just leave the C, Mr. ONeill said in an interview. But then, I dont think it would be much of an acronym.
Economic growth in other BRIC countries has been disappointing, and the economic outlook for developing economies in general has changed in the last few years amid the end of a commodities boom and a slowdown in Chinese growthwhich nevertheless remains high compared with that of its counterparts.
Meanwhile, signs of a recovery in the U.S and expectations the Federal Reserve will soon reduce its bond-buying program have helped strengthen the U.S. dollar, sucking money out of emerging markets and putting even more pressure on their less developed economies.
It has become fashionable to say the developed world is recovering while emerging markets are all slowing down, Mr. ONeill said. But what people dont understand is the size of China, he added.
The economist said that if Chinas economy grows 7.5% this year, as he expects, that would create an additional $1 trillion in wealth, in U.S. dollar terms. For the U.S. to contribute at the same level, it would have to grow around 3.75%, Mr. ONeill said.
Economists currently expect the U.S. economy to expand 1.5% in 2013, down from 2% projected in May, according to a recent survey by the Federal Reserve Bank of Philadelphia.
From 2011 to 2020, Mr. ONeill said he has assumed average growth for the BRIC countries of 6.6% a year, less than the 8.5% average in the previous decade. Most of it up to now has come from China.
India has been the biggest disappointment among the BRIC countries, while Brazil has been the most volatile in terms of investor perceptions, the economist said.
Between 2001 and 2004, many people told me I should never have included Brazil. Then, from 2008 to 2010, people told me I was a genius for including Brazil and now, again, people say Brazil doesnt deserve to be there, he said.
Brazils economic growth, which reached 7.5% in 2010, has been weak since then in spite of multiple government stimulus measures. The country seems doomed to growth of 2% or so in both 2013 and 2014, according to economists forecasts.
Brazils rapid growth in 2010 raised expectations, but many people forgot that the country is vulnerable to big moves in commodities prices, Mr. ONeill said.
Another problem, he said, is that private investment remains a small share of the countrys gross domestic product. Brazils investment rate has been stuck at around 18% of GDP, the lowest level of any BRIC country, for a decade.
Brazils problems in recent years were compounded by the strong performance of the Brazilian real, which made the country uncompetitive outside of commodities, Mr. ONeill said.
The trend for the Brazilian real has changed in the last few months and the currency recently slid to its weakest level in four years, amid slow growth, declining exports and high inflation. So far in 2013, the real has retreated 14% against the dollar.
The currencys weakness has more to do with whats happening outside of Brazil than inside, Mr. ONeill said. A weaker real will help Brazil into competitiveness, he said.
His advice for the Brazilian authorities, who have shown unease with the rapid depreciation of the currency, intervening repeatedly to try to slow the reals move, would be relax, he said.
They should only worry if theres a pickup in inflation expectations; otherwise, they should relax, he said, before the central bank late Thursday unveiled a massive intervention program to provide relief for the currency.
Brazilian inflation is currently 6.15%, close to the 6.5% ceiling of the central banks target range for 2013.
Even in the face of weak growth, Mr. ONeill says he doesnt plan to add or subtract letters from his famous acronym.
If, by the end of 2015, there is persistent weak growth in Brazil, India or Russia, then I might, he said, noting, however, that he expects Brazil to surprise positively in 2015, possibly even in 2014.
The acronym created in 2001 groups Brazil, Russia, India and China, and has become a reference for a perceived shift in economic power toward developing economies.
If I were to change it, I would just leave the C, Mr. ONeill said in an interview. But then, I dont think it would be much of an acronym.
Economic growth in other BRIC countries has been disappointing, and the economic outlook for developing economies in general has changed in the last few years amid the end of a commodities boom and a slowdown in Chinese growthwhich nevertheless remains high compared with that of its counterparts.
Meanwhile, signs of a recovery in the U.S and expectations the Federal Reserve will soon reduce its bond-buying program have helped strengthen the U.S. dollar, sucking money out of emerging markets and putting even more pressure on their less developed economies.
It has become fashionable to say the developed world is recovering while emerging markets are all slowing down, Mr. ONeill said. But what people dont understand is the size of China, he added.
The economist said that if Chinas economy grows 7.5% this year, as he expects, that would create an additional $1 trillion in wealth, in U.S. dollar terms. For the U.S. to contribute at the same level, it would have to grow around 3.75%, Mr. ONeill said.
Economists currently expect the U.S. economy to expand 1.5% in 2013, down from 2% projected in May, according to a recent survey by the Federal Reserve Bank of Philadelphia.
From 2011 to 2020, Mr. ONeill said he has assumed average growth for the BRIC countries of 6.6% a year, less than the 8.5% average in the previous decade. Most of it up to now has come from China.
India has been the biggest disappointment among the BRIC countries, while Brazil has been the most volatile in terms of investor perceptions, the economist said.
Between 2001 and 2004, many people told me I should never have included Brazil. Then, from 2008 to 2010, people told me I was a genius for including Brazil and now, again, people say Brazil doesnt deserve to be there, he said.
Brazils economic growth, which reached 7.5% in 2010, has been weak since then in spite of multiple government stimulus measures. The country seems doomed to growth of 2% or so in both 2013 and 2014, according to economists forecasts.
Brazils rapid growth in 2010 raised expectations, but many people forgot that the country is vulnerable to big moves in commodities prices, Mr. ONeill said.
Another problem, he said, is that private investment remains a small share of the countrys gross domestic product. Brazils investment rate has been stuck at around 18% of GDP, the lowest level of any BRIC country, for a decade.
Brazils problems in recent years were compounded by the strong performance of the Brazilian real, which made the country uncompetitive outside of commodities, Mr. ONeill said.
The trend for the Brazilian real has changed in the last few months and the currency recently slid to its weakest level in four years, amid slow growth, declining exports and high inflation. So far in 2013, the real has retreated 14% against the dollar.
The currencys weakness has more to do with whats happening outside of Brazil than inside, Mr. ONeill said. A weaker real will help Brazil into competitiveness, he said.
His advice for the Brazilian authorities, who have shown unease with the rapid depreciation of the currency, intervening repeatedly to try to slow the reals move, would be relax, he said.
They should only worry if theres a pickup in inflation expectations; otherwise, they should relax, he said, before the central bank late Thursday unveiled a massive intervention program to provide relief for the currency.
Brazilian inflation is currently 6.15%, close to the 6.5% ceiling of the central banks target range for 2013.
Even in the face of weak growth, Mr. ONeill says he doesnt plan to add or subtract letters from his famous acronym.
If, by the end of 2015, there is persistent weak growth in Brazil, India or Russia, then I might, he said, noting, however, that he expects Brazil to surprise positively in 2015, possibly even in 2014.
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