The BRICs as Drivers of Global Consumption
What the rise of consumption in the BRICs means for the global economy
As the G3 countries face a slow and difficult recovery, final demand will need to rise in the rest of the world to sustain global growth in the future. The world can look to the BRICs to increase their contribution to global domestic demand through higher consumption. This month we examine this possibility through consumption trends in the BRICs.
Real retail sales in the BRICs, with the exception of Russia, have held up much better than in the advanced economies over the past two years, and we expect this trend to continue. Our consumption growth forecasts imply that, by 2010, the BRICs will contribute almost half of global consumption growth.
This month, we look at the individual components responsible for this resilience. In China , consumer-based components (consumer products, food and beverages) have contributed the most, compared with other components, such as materials and equipment. Auto sales have picked up markedly in both China and India. In Brazil, retail sales have recovered substantially, thanks to government tax breaks, monetary and fiscal policy stimulus, and the resumption of credit lending to households. On the other hand, the sluggish retail sales report from Russia is mainly due to the sharp decline in non-food products.
The resilience of BRICs’ consumption is supported by our now well-known, long-term growth story, according to which we expect income per capita to continue to rise in the BRICs and spending power to shift from the richest countries towards a growing middle income bloc, comprising emerging markets in general and the BRICs in particular. The rise in consumption is more apparent as the penetration of different goods in the BRICs economies, with the exception of Russia, is currently low, suggesting there is more room for growth.