Whether the latest agreement of European leaders brings a final resolution to the euro crisis won’t be clear for some time, but few people are betting on it. And a reprieve from euro jitters might just focus attention on another trouble spot: Washington, where a Congressional supercommittee failed to reach a budget-cutting compromise last month and measures to extend the payroll tax cut are stuck in political gridlock. A long impasse could weaken the already none-too-strong economy.
“If Congress and the White House continue to be unable to get anything done,” said Lisa Shalett, the chief investment officer at Merrill Lynch Wealth Management, then “we are playing with fire.” In short, continued bipolar stress is most likely — with market anxiety swinging back and forth across the Atlantic.
These problems certainly loom large. But Jim O’Neill, the chairman of Goldman Sachs Asset Management, says they aren’t really the most important prospects on the horizon. In his view of the world, developments in Brazil, Russia, India and China — enormous and rapidly growing economies, which he labeled as the BRIC’s 10 years ago — will prove “far more important to investors” than the issues now weighing down the United States and the 17 countries of the euro zone.
Because the euro crisis is of “obsessive interest” around the world, he said in a telephone interview last week, European policy makers need to “make it clear that they’re not going to let the euro area implode.” That, he said, should help make people “a bit more relaxed and a bit more balanced.” And instead of focusing primarily on “tail risk” — on hedging against the extreme damage that a euro collapse could wreak — it may be possible for more people to realize that we are in the middle of an exciting economic transformation, he said.
Mr. O’Neill has a new book, “The Growth Map: Economic Opportunity in the BRICs and Beyond.” In it, he says that Brazil, Russia, India and China, as well as — Indonesia, South Korea, Mexico and Turkey — are economic powerhouses and should no longer be called emerging markets. He prefers the term “growth markets” for them, a name that may help investors “to understand the scale of the opportunity here, and for policy makers to grasp what is changing in the world.”
All these countries, he says, enjoy “largely sound government debt and deficit positions, robust trading networks and huge numbers of people all moving steadily up the economic ladder.” Their governance in some cases may leave much to be desired — he cited Russia as an example — but their economies compare favorably in many respects with the developed nations that are having so much trouble these days.
The eclectic countries comprising the growth markets all have relatively large populations tilted toward a young demographic — South Korea is the smallest but most prosperous of the group, per capita — and have already begun to grow at a very rapid pace.
The growth of China, the economic heavyweight among them, is likely to slow from an annual rate in the double digits to 7 or 8 percent, he said. At that pace, China should surpass the United States as the world’s largest economy by 2027, which, he said, was a very conservative estimate.
He acknowledges that Brazil, India, Russia and China have relatively little in common. That’s one reason, he says, that they are unlikely to be an enduring and cohesive political bloc. But what they shared in 2001, he says, “was that they all appeared increasingly eager to engage on the global stage,” and each, he says, has actually prospered mightily from world trade over the last decade.
In the intervening years, they have accounted for roughly a third of the growth of the world economy. To put that into perspective, he says, their combined increase in G.D.P. was “more than twice that of the United States, and it was equivalent to the creation of another new Japan plus one Germany, or five United Kingdoms.”
In the last year alone, he says, the economies of the four BRIC countries have almost expanded enough to “add another Italy” to the size of the world economy. And barring disasters, he says, this kind of growth is likely to continue.
As for the United States, whose strongest rising export markets are China, Brazil and Mexico, he says, “this is a fantastic opportunity” to help re-engineer the economy.
Will this mean more jobs moving offshore? Mr. O’Neill, a fervent advocate of free trade and globalization, allows that it may, in some manufacturing industries. But as the growth markets become more affluent and labor costs rise, wages in the United States will become more competitive, he says, and some jobs are likely to return. For the growth markets to fulfill their potential, he adds, restrictions on trade and currency controls in countries like China will need to be liberalized.
They will all need to avoid “disastrous setbacks,” he says, and many of them will need to combat “corruption.” Russia, in particular, needs to ensure that its government is more responsive to the desires of its citizens, he says. But the net effect of truly free trade, he maintains, is always positive over the long run.
AMONG the developed nations, he says, the United States is in a comparatively good position for sustained growth over the next few decades, partly because its population is relatively young compared with that of Europe and Japan, and because it will retain many of its current advantages, especially its strength in innovation.
A boom in the growth markets won’t mean profit for investors if the price isn’t right, he says, and without deep knowledge of a country, it’s easy to lose your way. It’s possible to reap many of the benefits of direct investment by holding shares in multinational corporations based in the United States. Over the long haul, he says, “America should learn to love the BRIC’s.”
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