THE BRICS ARE SLOWING DOWN:

Sarah,

Several years ago some economist came up with the term “BRIC” to use as shorthand when referring to Brazil, Russia, India, and China.  These countries are grouped together because they are huge and have experienced rapid economic growth over the last decade.  Now, all except Russia are witnessing an economic slowdown- China’s growth is the lowest in three years, India’s growth is the lowest in 7 years, and Brazil’s growth has dropped to zero.  Here’s an extremely oversimplified summary of why:

1.  Economic growth in China and India relies heavily on manufacturing.  The primary markets for these manufactured goods are Europe and America.  Europe is in a never-ending financial crisis and America’s economy is not growing.  Thus, demand for China and India’s goods has been weak.

2.  Relatedly, investment from European and American investors fuels growth in BRIC countries.  Since Europe is being forced to bailout its own economies, there is less money to invest in developing countries.

3.  China and India rely on manufacturing and Russia and Brazil rely on exporting commodities.  Commodities are essentially raw materials- metals, crops, wood, and oil.  When production at Chinese and Indian factories slowed down- so did the demand for these raw materials.  For example, Brazil has exported iron to China for the last decade.  Currently, a drop in demand for iron has led to a drop in Brazilian exports of iron to China.

4.  When economies grow, the wages of workers usually rise.  If a factory has to pay its workers more, it is less competitive globally.  For example, rising wages in China have made Mexican factories more competitive.  Although Chinese workers still earn less than Mexican workers, Mexico’s proximity to the United States allows for lower transportation costs.  When you even out the costs, Mexico may end up with the cheaper product in the American market.

4.  There is also a rash of country-specific problems.  For example, India cannot seem to maintain quality infrastructure.  Infrastructure in this context means roads, railroads, and electricity.  When companies cannot rely on the roads or power supply of a country, they are reluctant to build new factories.

5. I mentioned Russia is still growing.  This is because Russia’s main exports are oil and gas.  Demand for oil and gas has remained steady.  If demand for energy drops Russia’s economy will also suffer.