A looming deterioration of the external environment is already forcing a re-coupling of emerging markets with the troubled advanced economies, as the BRICS are experiencing a marked slowdown. “We have all been affected by the situation in advanced countries. This curbed growth in all of the BRICS countries,” Brazilian finance minister Guido Mantega said after the meeting of the BRICS finance ministers on Thursday.
Even though Brazil expects to resume stronger economic growth as early as in the third quarter of this year, the global economic slowdown is due to have a prolonged impact. “These countries are going to have lower growth for some time,” said IMF chief economist Olivier Blanchard. Nevertheless, he sees “no sign of hard landing in the BRICS” despite a marked economic slowdown in India. “The BRICS have been trying to help [boost global growth] but at the same time we have been affected by the situation in advanced countries. This curbed growth in all of the BRICS countries. There has been a very strong cut of international trade. Trade is going to grow less than 3.5% this year,” said Mantega.
Economic growth is now expected to amount to a mere 1.5% in Brazil this year, according to the Fund, a figure that Mantega considered to be “a joke” not so long ago when Credit Suisse first issued a similar forecast.
“Latin America has been hit,” Thomas Helbling, an IMF adviser, told Emerging Markets. “We revised growth down for Latin America. It was a factor for Brazil, due to the slowdown in the commodity markets. But the hit has been limited because many of Latin America’s trade relationships are with other countries,” he said.
But external factors will also continue to be an important factor behind emerging markets slowdown. “Should the external environment worsen again, emerging market and developing economies will likely end up re-coupling with advanced economies, much as they did during the great recession,” the Fund said.
In spite of the absence of the Chinese minister in Tokyo, Mantega said the BRICS advanced on their project to pool some of their foreign currency reserves and set up a form of preventive tool to protect themselves against a future crisis, although there is no firm date yet to set this up. “This is a kind of fund that could inject resources in countries that need it, similar to what Asian countries call the Chiang Mai agreement. This would be virtual resources which would only be used if need be,” said Mantega. “It is good to remember that the BRICS have the highest level of reserves in the world,” he said.
The BRICS also reported some progress towards the creation of their own development bank, which would be called the South-South bank, to invest in infrastructure and development. Mantega said China was represented by a deputy governor of the Bank of China “who had authority to represent China during the meeting”. The BRICS are due to meet again in Mexico City next month.