When Jim O’Neill coined the acronym Bric in 2002, he brilliantly identified the main force that would drive global economic growth for the next decade. These four economies – Brazil, Russia, India and China – had little in common, except that they had the scale and growth potential to transform the growth rate of global GDP as never before. For many years, their startling performance was the main manifestation of the phenomenon that became known as “globalisation”.

When the leaders of Brics (which has included South Africa since 2010) met for their annual summit last week, however, they knew that their collective lustre had faded. The bursting of the Chinese equity bubble, following the hard landing in the real estate sector, now looms as a major downside risk for global financial markets and world economic growth. Brazil and Russia have been mired in deep recessions, taking the aggregate Brics growth rate down to only about 2 per cent in April, according to Fulcrum’s “nowcast” activity models. Although these models have identified a pick-up in recent weeks, growth in the Brics remains well below its (falling) long-term trend rate, and Markit reports that manufacturing business surveys in the emerging economies fell in June to the lowest readings since the financial crash in 2009.

Since 2010, the long run underlying growth rate of the Brics has slowed from 8 per cent to 6 per cent. This is not surprising in view of the pronounced tendency for economies to revert to their mean long-run growth rates over time. But the actual growth rate has dropped even more sharply, from 11 per cent to 5 per cent. A cyclical downturn has been built on top of a secular one.

What had once been the brightest spark in the global economy has now become its big headache. What went wrong with the Brics and can they recover? Read more

This week in global macro, the emerging markets reminded us that they are, well, emerging markets. The Egyptian crisis may have moved towards resolution, but there are risks of contagion elsewhere in the region. India continues to be the worst performing stock market of the year, and China is slowing under the weight of tightening monetary policy.

Developed equity markets continue to out-perform, although headline inflation is rising, notably in the UK. Although many people are claiming that the Bank of England is losing credibility, that is not yet showing in the gilt market. In the US, there were some signs of greater hawkishness from certain members of the FOMC, but none where it really counts – which is in the minds of Ben Bernanke and his senior lieutenants. The US equity market ended the week at its highest level since June 2008. Read more