New Era

By Stefan Brill

The BRIC countries are the first to sprint out of the crisis. This promises good growth forecasts for export- oriented industrialized countries. At the same time, this development is not seen as a short interlude, but as the starting point for a new economic order for which strategies must be developed early on.

Jim O'Neill is currently one of the most sought-after economic experts. The Briton eloquently describes economic tendencies and their global context, which he can substantiate with precise numbers in a seemingly extemporaneous manner. O'Neill is head of Global Economic Research at Goldman Sachs. His forecasts, which are usually correct, lead one to believe that he knows where the course of the world economy is heading and where the pots of gold will be in the coming years. And that makes his statements much in demand. O'Neill recognized in 2001 the potential of several emerging countries and coined the term that is currently present in all business and investment periodicals: the BRIC countries (BRIC being O'Neill's acronym for Brazil, Russia, India and China) are emerging economies that will catch up to the G7 and emancipate themselves from the U.S. economy in the foreseeable future.

2010 will reveal the strength of the four countries for the first time. O'Neill is assuming growth of 4.6 percent in the worldwide gross domestic product (GDP). This will be led by the BRIC countries, according to the estimation of the Goldman expert. Accordingly, the BRICs will recover from last year's slump more quickly than the G3. It is anticipated that they will achieve GDP growth of more than nine percent by the end of 2010. "The independence of the BRICs has definitely increased since the crisis," says O'Neill. "They have learned to live without dependence on exports to the USA." The next phase of the recovery will be driven by domestic demand.

O'Neill sees the reason that these four countries could grow to be an independent economic power in two significant attributes. It is their massive populations, in conjunction with increasing urbanization of the countries of Brazil, Russia, India and China, that are helping them achieve such rapid growth. Urbanization goes along with extensive investments in infrastructure. In turn, this is also seen as the consequence of and reason for economic growth. Energy supply and road, transportation and communication systems do not simply integrate economies more closely into global trade. They also increase the quality of "human capital," which will put the BRICs on equal terms with the industrialized countries as business, development or market partners and allow income and consumption to increase further.

The second advantage for the BRICs: they were not significantly affected by the crisis. This will allow them to catch up to the industrialized countries faster than Goldman Sachs originally thought. O'Neill suspects that China will overtake Japan in 2010, and that Brazil could overtake Italy. "All developments will come to pass about five years earlier than what we originally expected." The decisive phase will take place around 2030. China could catch up to the USA by then. In 2031, the BRICs as a group could be as economically strong as the G7.

Will this soon mean "Farewell, G7"? The world economic order will indeed change fundamentally, and this change began long ago. The industrialized countries can still profit from the growth of the four BRIC countries, which have a great need for production technologies, for example, due to their growing infrastructures and increasing demand. The future will involve viewing them more as players who are at least equally strong, not just as growth markets and lowwage countries. Brazil, Russia, India and China have already proven their economic significance at their first common economic summits. Topics of discussion there included the possibility of "de-dollarized trade" in international business. Beijing and Moscow are already experimenting today with conducting energy trade in rubles.

Jim O'Neill advises the industrialized countries not to view the BRICs purely as growth engines, but to take them seriously as new economic powers. He calls on the industrialized countries to rid themselves of old patterns of thought. "We should not tell the BRICs how they need to shape their development," recommended O'Neill in an interview. "In the future, the BRIC countries and their markets will be decisive for all of us."