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2013, Study Session # 7, Reading # 20

DREAMING WITH BRICs: THE PATH TO 2050

2. A DRAMATICALLY DIFFERENT WORLD

Economic Size Economic Growth

By 2025, the BRICs economies could account By 2050, only India would be recording growth
for over half the size of G6. rates significantly above 3%.

In <40 years, the BRICs economies together
could be larger than the G6 in U.S $ terms.

Incomes & Demographics Global Demand Patterns

Only Russia will catch up with the G6 in terms The annual
in U.S $ spending from the BRICs
of income per capita by 2050. could be twice that of G6 by 2025 & four time

Demographic impacts vary greatly. higher by 2050.

Decline in working age population will be
steeper in Russia & China than India &
Brazil.

Currency Movements

Currency appreciation may contribute about

1/3 of the
in U.S. $ GDP from the BRICs.

BRICs real exchange rates could appreciate by
up to 300% over the next 50 years.

3. HOW COUNTRIES GET RICHER

Developing economies grow faster than developed economies due to

following two reasons:

Returns on capital are higher (less capital).

May able to use technologies available to developed countries.

BRICs economies all have exchange rates that are a long way below PPP
rates (their currencies will tend to appreciate).

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2013, Study Session # 7, Reading # 20

4. BREAKING DOWN GROWTH

Growth accounting divides GDP growth into three components.

Growth in employment.

Growth in capital stock.

Technical progress.

5. A MORE DETAILED LOOK AT THE BRICs' POTENTIAL

Brazil China

Size of economy will overtake Italy, France, U.K GDP growth rate falls to 5% in 2020 & slows to
& Germany. around 3.5% by the mid 2040.

GDP growth rate averages 3.6% over next 50
years.

India Russia

Over the next 50 years, Indias growth is expected By 2050 the countrys GDP per capita is by far the
to remain above 5%. highest in the group & comparable to G6.

6. ARE THE RESULTS PLAUSIBLE?

Three ways to cross-check the forecasts made for BRICs.

GDP growth forecasts for next t 10 years should be in line with
IMFs assumptions of potential growth in BIRCs.

Alternative growth projection & models yield very similar
results.

Implied changes in currencies & GDP are fewer speculators than
what some economies actually achieved.

7. A LOOK BACK IN TIME WHAT WOULD WE HAVE SAID IN 1960s

In developed countries, the differences b/w projected & actual

growth rates are small.

In developing countries their output gap is wider.

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2013, Study Session # 7, Reading # 20

8. ENSURING THE CONDITIONS FOR GROWTH

To ensure solid growth performance, following conditions

should be in place.

Stable macroeconomic background & sound
macroeconomic policies.

Openness.

Strong & stable political institutions.

High level of education.

9. HOW DIFFERENT ASSUMPTIONS WOULD CHANGE THINGS

Important assumptions that, if altered, can significantly affect

conclusions:

Catch up convergence rate captures a broad range of
factors that determine the ability to catch up.

Investment less important, but substantial differences from
assumptions would certainly alter the main conclusions.

Demographics these assumptions may also turn out to be
incorrect.

10. IMPLICATIONS OF THE BRICs' ASCENDANCY

If the BRICs do meet the projections then:

Higher than expected BRICs, growth.


Returns &
demand for capital.

In local spending pattern.

Advanced economics will become a shrinking part of
the world economy.

Regional neighbors of the BRICs could benefit from
BRICs growth.

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