BRIC growth prospects

by Dave

BRIC Countries (Brazil, Russia, India and China).Image via Wikipedia

via DB Research
there are also structural factors at work that bode well for the medium-term growth prospects of the BRICs. These factors can be captured in a simple growth accounting framework. Economic growth can be broken down into several components, namely changes in labour and capital inputs, and total factor productivity. (Total factor productivity captures technological progress and/ or efficiency gains and is the residual that is not explained by changes in labour and capital inputs.) Growth accounting provides an analytical framework to assess medium-term economic growth dynamics.

  1. Labour supply dynamics will remain favourable in Brazil and India thanks to demographic trends and/or low urbanisation ratios. In Brazil and India the working age population will continue to expand until the middle of the current century, while in China it will decline after 2015 and in Russia it is at risk of collapsing. From a purely demographic point of view, India faces the most promising prospects, combining solid population growth and a low degree of urbanisation. While this may pose challenges of its own (in terms of urban development and infrastructure), it will be supportive of growth dynamics.
  2. Recent capital accumulation trends favour China and India. Assuming that investment ratios do not change dramatically over the next few years, China and India will face much brighter prospects than Brazil or Russia. Currently domestic investment ratios amount to around 40% and 30% of GDP in China and India, respectively, versus an investment ratio of 20% of GDP (or less) in Brazil and Russia (see chart).

The projected changes in the factors underpinning an economy’s growth potential also suggest that the China and India economies will continue to grow much faster than Brazil and Russia over the medium term.