BRICs Lead the Global Recovery

As the business cycle stabilizes, BRICs are leading the way

There is growing evidence that the global business cycle has begun to stabilize. Positive signs have been apparent in most headline PMI indices, as well as in their “guts." The BRICs have led both the advanced economies and the rest of the emerging world in this process. We expect resilient domestic demand growth from emerging markets, particularly the BRICs, to be one of the driving forces of an export-driven recovery in advanced economies over the next couple of years.

As we have discussed in various publications, most recently Global Economics Weekly 09/19 “The Race to Trend Growth,” there is growing evidence that the global business cycle has started to stabilize. Most headline PMI indices, as well as the underlying components, have shown signs of stabilisation, with the BRICs leading both the advanced economies and the rest of the emerging world in this process.

We expect China to lead the global recovery, returning to trend growth by mid-2010, much earlier than any other country. India and Brazil should return to trend in 2011, also more rapidly than most other emerging markets. In addition, while the momentum is strongest in China, all three countries are poised to close their output gaps quickly. This rapid narrowing of output gaps is due to recent above-trend growth as well as the relatively quick return to trend growth forecast for these countries. Russia lags the other BRICs as it is set to return to trend growth in 2012, close its output gap much later in 2016.

We expect resilient domestic demand growth from emerging markets, and in particular the BRICs, to be one of the driving forces of an export-driven recovery in advanced economies over the next couple of years. As we begin the recovery phase, how quickly individual countries return to trend growth and close their output gaps is likely to be an important factor in the market.

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