News for Credit Professionals

Bloom Off the Emerging Market Rose?

The place to be for the last 10 years has been the emerging market as the notion of the BRICs (Brazil, Russia, India, China) was the motivation for many an economic and investment decision, but this last year was anything but kind to the nations that were once at the forefront of financial activity.

There was a brief moment in the middle of the last decade when some asserted that the emerging nations would be able to disconnect from the travails of the developed nations and base their growth on interactions with each other. That has turned out to be a real pipe dream. The commodities and manufactured goods upon which these states depend had to be sold to those traditional markets and, without them, there was little growth.
The question for 2012 is whether these nations can regain their momentum. The bets are that there will be a more profound division between the haves and have-nots this year. India seems set to recover some of that momentum, but Russia could suffer a severe reversal unless there is a major hike in the price of oil. Brazil could struggle to handle the inflation that came with growth, a dilemma many other Latin states will face. The Asian states that live and die with exports will have to wait for the United States and Europe to come back to life -- that will be a while. The investor interest that provided financing has slowed and nothing suggests that it will recover any time soon.

In any case, the BRIC nations risk looking more like BRICK nations these days, as they have been weighed down by inflation, low rates of productivity and inadequate demand for their output.

Source: Chris Kuehl, PhD, NACM economist