BRIC countries leading the way in global growth, says study

It is the BRIC (Brazil, Russia, India and China) countries that have been driving the world economic growth for the last decade and a half.

According to the latest Goldman Sachs report on global trends, if the BRIC countries can continue on their upward trend, and if productivity in Europe and Japan increases, then the global economy could enjoy its best period yet over the next decade.

The BRIC's contribution to world GDP growth in Purchasing Power Parity (PPP) terms has tripled from 20 per cent in 1990 to around 60 per cent. The rising importance of the developing world is expected to grow further as it offsets softer growth elsewhere, especially in the G7 countries , says the report.

The impact of the growth is mainly towards China and India. The reports suggests that the drivers of energy and other commodity demand growth are likely to stay strong.

Looking at trend growth in individual countries, potential output in India and Brazil has risen from 5.6 per cent and 1.9 per cent respectively in 1990 to 6.4 per cent and 2.9 per cent respectively in 2004. While China's economic growth has been impressive over the last 25 years, the upswing in its trend occurred during the early 1990s.

Growth appears to have levelled off at about 8 per cent in the recent years. By contrast, potential growth in Europe has declined dramatically over the past 15 years, falling from 2.7 per cent to 1 per cent in Germany and from 1.9 per cent to 1.3 per cent in Italy. As higher trend growth should mean higher global profit growth, it should come as a good news for global equities.

While the increased contribution to growth from developing markets may raise trend growth, it may also raise the volatility of global growth relative to the past, says the report. The risk of fluctuations in growth in Brazil and Russia in particular, and perhaps in China and India too, is higher than that in the advanced economies.

However, the report says the notion of less stable growth should not be exaggerated, particularly since the BRIC nations have not behaved like conventional, emerging markets.

China in particular has reported relatively stable growth for some time, and volatility in all of these economies could decline further as they develop.