beyondbrics

Even the world’s most bullish investment bank didn’t see this one coming so soon.  The collective GDP of all four Bric countries is set to overtake that of the US by 2013 according to Goldman Sachs, whose Jim O’Neill first christened the group in 2001.

In a monthly note to investors, the bank also said Bric GDP is now worth 75 per cent of US GDP. That sum, in case you’re wondering, is US$11,200bn.

Take a look at this chart, care of Goldman’s Brics Monthly report:



Goldman Sachs doesn’t actually say Bric GDP will surpass US GDP by 2013 (it instead chooses a more vague “several years”), but the chart’s implications are pretty clear, assuming that Bric growth continues at the current rate.

The bank has traditionally been bullish on the Bric growth story, and sometimes overly so. In May the bank lowered its GDP forecast for China to 9.4 per cent from an earlier 10, bringing it closer in line with the IMF forecast of 9.3.

But it says its prediction about the Brics overtaking the US is something it previously didn’t expect until 2018.

It also points out that all four original Bric countries will be among the ten largest economies in the world by the end of this year

Over the past three years, Bric GDP has contributed 50 per cent of global economic growth (measured in US dollar terms). That is a big deal when you compare the figure to a 2000-2007 average of 27 per cent.

So what has helped to move the Bric economies up the rankings? It’s well known that they have weathered the financial crisis far better than the developed world, continuing to grow while many developed economies have ground to a halt.

Another factor is the appreciation of Bric currencies against the US dollar. This is particularly true of Brazil – where the real gained close to 50 per cent against the dollar between 2009 and 2010.

GS notes:

“It is important to remember that GDP growth in USD terms is driven both by underlying real GDP growth and by currency appreciation. Over the longer term, our optimistic outlook for the BRICs is based on our expectation both that they will grow at a rapid clip as they ‘catch up’ to developed country productivity levels, and that their currencies will appreciate in the process.”

Even taking currency fluctuations into account, GS is convinced that the Brics will soon be permanently among the top ten economies.

Earlier this year China surpassed Japan to become the world’s second largest economy, and Brazil recently overtook Spain, Italy and the UK to secure the 5th largest economy ranking.

India surpassed Spain to secure ninth position, which is no surprise given Spain’s debt woes. More surpisingly, Russia also overtook Spain to become the 11th biggest economy.

But with fears of a Chinese economic hard landing, Brazilian credit bubble, and Russian dearth of foreign investment,  some investors might question Goldman Sachs’ optimistic forecasts.

Related reading:
Beijing: Greece could hit us too, beyondbrics
Brazil leapfrogs Britain, beyondbrics