Only China and India Expected to Grow

BRIC Business

Of the 15 largest economies in the world, only China and India are expected to enjoy growth in 2009.

Brazil's government still thinks it can just make positive growth for the year too, although outside forecasters don't agree with it. In mid-June, leaders of the BRICs even held their first summit meeting. But Russia, a resource-rich land with an otherwise weak economy and a declining population, is in a different situation from its BRIC brethren. It's having a terrible year, with the World Bank predicting that its GDP will contract 7.9%, far worse than that of any other top-15 economy.

Before the financial panic of last fall, many business and government leaders in the BRIC countries spoke confidently of "decoupling" from their economic reliance on the U.S. Such talk faded as a subsequent collapse in global trade left no nation untouched. Yet with their big populations and growing middle classes, the BRICs now seem to have suffered only a glancing blow. The word redecoupling is beginning to appear in the media. Nandan Nilekani, who is about to leave the chairmanship of Indian tech company Infosys for a government post, speaks of "tactical coupling" and "strategic decoupling." That is, nobody could escape the short-term effects of a global crisis, but the basic BRIC growth story still holds.

If the BRICs can keep growing even as the U.S. and Europe flounder, it would spell an end to America's long reign as the driving force in the global economy. Goldman's O'Neill has said it's "conceivable" that China's economy will be bigger than that of the U.S. in less than 20 years and that the BRIC countries as a group will carry as much economic weight as the G-7 group of Western powers plus Japan. This sounds like bad news for the U.S. — and it will certainly bring all sorts of new complications to the global political scene. From a purely economic standpoint, though, the rise of the BICs is great in that it offers the only remotely attractive path out of our current conundrum.

Discussions of the U.S. losing its spot as global leader often get mired in predictions of doom and comparisons to the Roman Empire. When Rome fell, technological advances were lost for centuries, and Europe descended into the Dark Ages. The rise and fall of economic powers since the dawn of modern capitalism in the 17th century has been a different story. There have been shifts in relative power, and some have led to violent conflict, but living standards have continued to improve over time, even in lands that lost the crown of most powerful — Britain being the most recent example.

And so while U.S. economic dominance appears to be giving way to something more mirky, this doesn't imply absolute decline. The U.S. retains a lot of strong points — great universities, millions of ambitious immigrants, a culture that celebrates risk-taking — that are hard for any other nation to match. Just because the U.S. is no longer all-important doesn't mean it will no longer be competitive.

In fact, the U.S. might turn out to be more competitive. American dominance has in recent years been a mixed blessing. Many countries got addicted to selling to American consumers and poured capital into the U.S. to keep the buying going. These inflows kept the dollar strong, making life tough for U.S. exporters; they also saddled Americans with the unsustainable debt loads that led to the financial crisis. Now no one abroad is willing to lend to deadbeat American households, and the U.S. government has temporarily taken over as the world's chief borrower and spender. But as we've just learned from the example of the American consumer, one can't borrow and spend forever.

Sometime in the near future, then, the U.S. will have to start living within its means — or at least a lot closer to them than it currently does. To keep this new American frugality from battering the global economy even more than it's been battered, somebody has to pick up the resulting slack in demand. Europe and Japan have been hit harder by the downturn than the U.S. has, and they have aging, slow-growing populations unlikely to ignite consumer booms. That leaves the BRICs as pretty much the only remaining candidates. These economies are still too small to take up all the slack: together their GDP amounts to less than half that of the U.S. But they are expanding rapidly. Yes, their ascent spells relative economic decline for the U.S. The faster it happens, though, the sooner a durable global economic recovery will get under way.

There's no doubt BRIC economies are the key to future economic growth.

BRIC business