The World in 2011 to 2025…BRICs and the G7 Compared

In the New Year, all media outlets rush to make their predictions for the coming year. In reality, it is hard to predict the several natural disasters that characterised 2010, or the economic crisis that surprised the global economy in 2009 and 2008 and even recent tragedies like those in Arizona this past weekend which all occur beyond our control. PWC.com took to making a report on The World in 2050, focusing on the rise of emerging economies like those BRICs and other emerging markets like Mexico and Turkey. The report focuses on their rise to equal if not grow past the GDP of many G7 nations.

In the report it was predicted that Brazil will equal the GDP of Germany by 2025, and will pass that of countries like France and Canada over the next few years. This report about emerging markets from 2011 and beyond is certainly interesting, but it depends on a lot of unpredictable factors measured in a current economy that is one of the most erratic in our recorded economic history. The unpredictable nature of measuring economic variables in today’s economic is that some progress is made while some losses still exist, but they came out of the chaos of economic reform of 2008-2009 and changed the paradigm of how many macroeconomists see growth and poverty and how economic agents in the public and private sector can be used to stabilise a national economy.

To take one example of how growth in the emerging markets will allow those economies to grow from manufacturing, Brazil was predicted to match the economy of Germany by 2025 and those in Europe and North America will displace their manufacturing and be based on the new economy in the future. If you analyse the Brazilian economy, the recent economic boom is directly related to the rapid growth of the Chinese economy and its need for Latin America’s natural resources. China however has a demographic plug, as in 10 to 15 years many of the employees who currently are building their manufacturing revolution will retire and will not be replaced naturally and will not be replaced by immigration. Brazil needs to address the issue that has always put Latin America in passionate boom and bust cycles. If their economy grows mainly because of natural resources, then when the market drops for those products Brazil will need to be diverse enough at that point to carry on their economic progress. At this point there are only very few hard policies in Brazil and Latin America to grow their economies past natural resources and keep their boom, well, booming. It is not that those policies cannot be created, it is just that there does not seem to be a great push to diversify those economies as the impression is that Latin America have finally broken their destiny of boom and busts, but if there is no creative approach to realise that no economic boom is permanent, then the future is as precarious as the present.

German growth in recent history comes as a unique one, as while the neo-liberal model for Western economies seeks to move into the new economy and put manufacturing in emerging markets to lower costs, and prices for the consumer, Germany owes much of its recent economic recovery to its manufacturing sector. Much of what is being purchased is characterised by high value items being bought by the new middle classes in emerging markets, but there is no doubt that the old staple of a national economy, manufacturing, is the engine driving much of Germany’s growth. Comparing another G7 like Canada, much of Canada’s recent growth has come from the growth in energy prices and Canada’s large energy sector and minerals sector. Canada however has a large manufacturing base along with energy, which has given it enough steam to push through their manufacturing worries while still putting money from energy into the national piggybank. As a large country with natural resources, Brazil can match Germany in a generation, but they have to become a Canada in order to do so.

It is certainly interesting to see the predictions of BRICs and future BRICs to G8 economies, but predictions are not facts, and a debate on the information is a worthy one to have in the New Year. You can find the PWC.com report The World in 2025 here.