Monday, December 19, 2011

Here’s the good news: You’re not Bank of America

Ten years ago, Goldman Sachs’ Jim O’Neill coined the term “BRICs” to lump together a group of large, rapidly-growing economies that we all know well: Brazil, Russia, India, and China.
True to his thesis at the time, growth and development in these countries has left the rest of the world for dead over the past decade.
But all good things must come to an end… and it’s now clear that the BRICs are in for a much more difficult period.
China is slowing fast. Property prices have stalled and begun pulling back, souring a huge component of economic growth. The same goes for the country’s infrastructure spending.
Even China’s stalwart manufacturing sector is showing signs of contraction based on the most recent November numbers.
In Brazil, the economy (which is highly dependent on exporting natural resources to Asia) has ground to a halt. Further, the debt-fueled domestic consumption binge among Brazilian households is slowing as debt service burdens have reached nearly 30% of the average Brazilian paycheck (vs. 16% in the US).
India, meanwhile, is struggling with runaway inflation, a collapsing rupee, political gridlock, and a series of high profile corporate collapses– led by Kingfisher Airlines, the plaything of flamboyant tycoon Vijay Mallya, who has been forced to personally guarantee the company’s debts.
The  rupee is the worst performing currency in Asia this year and has just fallen to a record low versus the US dollar.  The Indian economy is really on the skids.  Industrial output was 5.1% lower in October versus a year ago.  Output of capital equipment, which is considered a good leading indicator of future economic activity, fell a much more drastic 25.5%.

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