Brics face structural problemsComment on this story
The Brics, once touted as the high-growth major countries of the future, show serious structural problems which sheds doubt on their ability to continue to grow rapidly:
- In Brazil, India and South Africa, numerous bottlenecks (labour force, energy, transport infrastructure) are hampering industrial growth.
The resulting external deficits and pro-cyclical international capital flows are destabilising the economies and their exchange rates;
- Russia’s increasing dependence on sales of oil and petrol (“Dutch disease”) is making the economy undiversified and vulnerable.
The loss of confidence among domestic savers has given rise to huge capital outflows, which are further weakening investment and the currency; and
- In China, the excessive rise in labour costs has eroded the competitiveness of industry and imposed a switch to a growth model driven by construction (residential, public infrastructure).
This poses a grave danger for the future: accumulation of debt, decline in construction needs and a bloated construction industry in the future, decline in the sophistication of the economy.