Looking forward to 2016 focusing in the BRIC group of countries, what impact will they have on the world economy? (30 marks) The BRIC group of countries consists of Brazil, Russia, India and China. BRIC describes the growing power and influence of the emerging markets of these countries in the global economy. In recent years, all four BRIC countries have experienced rapid economic growth, especially China. The BRIC countries were predicted to account for 37% of global growth between 2011 and 2016 and this will increase their share of global output to 23%.
On the other hand, the proportion of the G7 economies’ global output is forecasted to fall from 48% to 44% over the same period of time. This data suggests that the growth of the BRIC economies is having a negative impact on the major economies. Manufacturing in the Europe and North America has been slumping in recent years due to the increasing price of raw materials and labour. People are being replaced with high-tech engineering hence there are fewer jobs.
As a result of this, a lot of manufacturing is being moved to the BRIC countries where labour costs are raw materials are cheap. This is having an adverse effect on countries such as the UK. For instance, the UK car manufacturing industry cannot compete with China in terms of prices and output, hence leading to a decline in the industry. The buying power of consumers in the BRIC countries has improved as their economies have grown. Confidence has also increased within businesses and consumers, leading to more economic activity.
As a result of this there have been more opportunities for other countries to export their goods to the BRIC countries. In addition, many brands and stores are expanding into these countries to fill gaps in not yet occupied in the emerging markets. The expansion opportunities for businesses in the BRICs will encourage growth in the global economy. However, the gaps in the emerging markets are being filled rapidly by multi-national companies therefore these opportunities will be few or gone in the coming years.
The BRIC countries are manufacturing based therefore they rely heavily on raw materials. As a result of this there has been a lot of investment in other countries to secure natural resources. For instance, China invested a lot in African nations where it is trading cash for oil drilling rights. These trade deals should lead to improved economic conditions in Africa and other countries. Stock markets in the BRIC countries are emerging ones therefore they tend to give higher returns compared to developed markets around the world.
Data shows that in 2010, Russia & India stock markets performed better than all other markets; Russia gave returns of about 21% while Japan gave negative returns of about -3%. This would most likely result in investors shifting from developed economies to the emerging economies of the BRIC countries. As a consequence, other countries could witness a slower economic growth. However, the stock markets fluctuates frequently hence investors will invest based on a short term evaluation.
Finally, looking forward to 2016 I think the BRIC group of countries will have a positive impact on the world economy. The BRIC economies have provided businesses with lucrative investment opportunities and a growth market. Making use of these opportunities could help revive the global economy. Although the BRICS are seen as a threat to developed economies such as the US and UK, the trade activities such as exporting and importing Is helping all the economies involved.