THE BRICS HIT THE WALL
Half the world economy is one accident away from a deflation trap. The emerging market bloc makes up half the world economy, far higher than in any previous crisis. Roughly $4 trillion of foreign funds swept into emerging markets after the Lehman crisis, much of it by then "momentum money" late to the party.
One country after another is now having to tighten into weakness. Neil Shearing from Capital Economics says Brazil, India and Russia are all suffering from the 1970s curse of "stagflation," unable to stimulate their economies to revive growth.
Mr. Shearing said the BRICS bloc (Brazil, Russia, India, China and South Africa) are in worse shape than many of the other emerging market states, but the strains are spreading.
While every story is different, the common theme for the BRICS is that they have exhausted their catch-up growth models, let credit booms get out of hand and failed to push through reforms while the going was good. Productivity rates have plummeted almost everywhere. That most certainly includes China.
