Brics miracle over as world faces decade-long slump

US Conference Board fears Brics miracle over as world faces decade-long slump

The catch-up boom in China, India, Brazil is largely over and will be followed by a drastic slowdown over the next decade, according to a grim report by America’s top forecasting body.

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China’s double-digit expansion rates will soon face, fallng to 3.7pc from 2019-2025 as the aging crisis hits. 

By Ambrose Evans-Pritchard

7:37PM GMT 13 Nov 2012

377 Comments

Europe's prognosis is even worse, with France trapped in depression with near zero growth as far as 2025 and Britain struggling to raise its speed limit to 1pc over the next three Parliaments.

The US Conference Board’s global economic outlook calls into question the "BRICs" miracle (Brazil, Russia, India, China), arguing that the low-hanging fruit from cheap labour and imported technology has already been picked.

China’s double-digit expansion rates will soon be a romantic memory. Growth will fall to 6.9pc next year, then to 5.5pc from 2014-2018, and 3.7pc from 2019-2025 as the aging crisis hits and investment returns go into "rapid decline".

Growth in India - where the reform agenda has been "largely derailed" - will fall to 4.7pc to 2018, and then to 3.9pc. Brazil will slip to 3pc and then 2.7pc. Such growth rates will leave these countries stuck in the "middle income trap", dashing hopes for a quick jump into the affluent league.

"As China, India, Brazil, and others mature from rapid, investment-intensive ‘catch-up’ growth, the structural ‘speed limits’ of their economies are likely to decline," said the Board. 

The fizzling emerging market story is a key reason why the West has relapsed this year. The world is now facing a synchronized downturn all fronts, with little scope for fiscal and monetary stimulus.

^{France slumps to bottom of the class, with Britain close behind}

"Mature economies are still healing the scars of the 2008-2009 crisis. But unlike in 2010 and 2011, emerging markets did not pick up the slack in 2012, and won’t do so in 2013," it said.

The Conference Board says Europe’s demographic crunch and poor productivity has reduced trend growth to near 1pc, though it could be worse if the region makes a hash of monetary policy and follows Japan into a "structural deflation trap". Large numbers of people may be shut out of the jobs market forever.

Germany will outperform Italy and France massively over the next five years, implying a bitter conflict within EMU over control of the policy levers. While the report does not analyze debt-dynamics, it is hard to see how the Club Med bloc could keep its head above water in such a grim scenario or stop political revolt coming to the boil.

Bert Colijn, the Board’s Europe economist, said France’s woes stem from low investment, as well as delayed austerity and reform. The reckoning will now come.

He thinks Spain will fare better since it has already taken its bitter medicine. It is expected to grow at 1.8pc for the next decade as "Schumpeterian" creative destruction clears away dead wood and unleashes fresh energy - a contentious point since labour economists argue that unemployment of 25.6pc is doing permanent damage to parts of the workforce, and therefore to economic potential.

America has a younger age profile and should eke out 2.5pc to 3pc growth until 2018, and 2pc thereafter. It has a big "output gap" of 6pc of GDP to close before it hits any speed limit, so part of this is just the effect of elastic snapping back.

^{Emerging markets deflate}

The Board said lack of demand lies behind the current global malaise, but the fading technology cycle may prove a greater threat over the long-term.

The thesis is based on work by professor Robert Gordon from Northwestern University, who argues that the great innovation burst of the last 250 years is a "unique episode in human history" and may be fading. His claims challenge the work of Nobel laureate Robert Solow - orthodoxy since the 1950s - that economic growth is a perpetual process once the right legal and market framework is in place.

The Conference Board’s forecast is starkly at odds with a report by the OECD last week predicting that China would keep growing at 6.6pc until 2030, and India at 6.7pc -- propelling the two rising powers to global dominance.

Apostles of the BRICS revolution are certain to dispute the claims. Yet there could be no clearer sign that the emerging market euphoria of the last decade has fully deflated.

Why Kofi Annan had enough over Syria

The UN's special envoy and the Bric countries have got increasingly frustrated with the west's domineering consensus on Damascus

• 
• • Jonathan Steele
  • guardian.co.uk, Sunday 5 August 2012 21.00 BST

Free Syrian Army soldiers in Aleppo take a break from the fighting. Photograph: Goran Tomasevic/Reuters

When the history of Syria's catastrophic civil war comes to be written, 30 June 2012 will surely be recognised as the only true moment of hope. On that day in Geneva the five permanent members of the UN security council united behind a communique calling for a transition to a democratic system in Syria and the formation of a government of national unity in which opposition leaders and members of the current government would share power.

They called for a firm timetable for elections in a fair environment. And, with an eye on the chaos that followed the US-imposed scheme of de-Ba'athification in Iraq, said the continuity of government institutions and qualified staff in Syria's public services must be preserved. This included the military and security forces – though they must in future adhere to human rights standards.

They also called on the Syrian government and opposition groups to re-commit to a ceasefire. Sensible, detailed and constructive, the communique was also remarkable for what it did not contain. Although the call for a government of national unity meant Syria's authoritarian regime should be dismantled, the security council's permanent members did not mention the usual cliche of "regime change", which over-personalises complex issues by focusing on the removal of a single towering personality. There was no specific demand for Bashar al-Assad to resign, let alone as the precondition for negotiations between the government and its opponents, as western states and most Syrian opposition groups previously insisted.

In short, the communique appeared to move the US, Britain and France, as well as Turkey and Qatar, which also attended the Geneva meeting, to an even-handed stance at last. It marked Kofi Annan's finest hour as the UN and Arab League's special envoy.

A few days later, Russia circulated a draft resolution at the UN in New York to endorse the new approach. It urged member-states to work in the co-operative spirit of the Geneva text, extend the UN monitors' team in Syria and press for a ceasefire. Then came the spanner. Britain, France and the US proposed a rival resolution with the one-sided elements that provoked earlier Russian and Chinese vetoes – punishment of Assad if he did not comply, threats of new sanctions, no word of pressure on the opposition and veiled hints of eventual military force by referring to chapter seven of the UN charter.

The resolution was a disaster, and it is no wonder that in explaining his resignation (in a Financial Times article on Friday) Annan highlighted the security council's failure to endorse the Geneva recommendations. Annan remains too much of a diplomat to take sides openly but his disappointment with the big western states for their "finger-pointing and name-calling" of Russia and China over Syria is clear.

His frustration is shared by the new powers on the international stage that are increasingly angry with the domineering western consensus on many issues. When the UN general assembly debated a Saudi resolution last week that followed the west in calling for sanctions and Assad's departure, Brazil, India and South Africa all objected. In the west it is easy to pillory Russia for rejecting internationally imposed regime change by saying Vladimir Putin fears a "colour revolution" in Russia (even though there is no such prospect). China's democratic credentials can be sneered at. But when the three other Brics, which hold fair, orderly, and regular elections, object to the western line on Syria, it is time to take note. Indeed, the west did adjust. It got the Saudis to water down the draft lest it receive less than half the world's votes.

The retreat was only tactical. The Obama administration promptly announced it is "accelerating" its support to Syria's rebels by giving them intelligence and satellite data on troop movements. Annan's disappointment must be massive. Until he started work in February, the military pattern in Syria had been consistent for several months – occasional forays by rebels into urban areas followed by excessive reaction by government troops, with artillery, snipers, and mass arrests.

Since then, apart from a few days of relative quiet in April when a ceasefire partially held, Syria has seen a huge influx of arms to the rebels, growing involvement by foreign special forces, and the infiltration of al-Qaida jihadis and other Salafists. What began as a peaceful uprising and then became local self-defence has been hijacked. Under Saudi, Qatari and US leadership, and with British, French and Israeli approval, it has turned into an anti-Iranian proxy war.

This does not mean the democratic aspirations of Syria's original protesters should be abandoned, or that the Syrian government should not start to implement the Geneva principles for transition that Annan briefly persuaded the big powers to accept. The outlook is too desperate. As tens of thousands flee their homes, and the destruction of Aleppo – and perhaps soon of Damascus – looms ever closer, a ceasefire and political compromise have never been more urgent.