A report published by Euromonitor in November last year argued that the theory of ‘decoupling’ – an economy that is able to grow, regardless of the economic pressures surrounding it –  for the so called BRIC economies (Brazil, Russia, India and China) had proved wrong, as ‘the financial meltdown sent stock markets in the BRIC economies tumbling‘. Many economists have debated whether the BRIC economies will follow the US’ gloomy path into economic meltdown as a result of their highly interconnected economies or whether the BRIC economies could emerge from the crisis unscathed.

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A major consequence of a globalised world, is that the impacts of the recession are also likely to be global. The BRIC economies have increasingly come to depend on foreign markets as consumers of their exports. Euromonitor predicts that Brazil and China will see weaker demand from the USA and Europe for their exports and India’s service sector will also suffer. Falling energy prices will impact Russia, being a country heavily dependent on oil for its GDP. According to the BBC ‘Russia has failed thus far to use revenues from oil to develop the economy to support growth now the commodity price for oil is falling. it has failed to develop a broad base of small businesses that can help Russia’s economy grow from another quarter.’ Russia’s economy is therefore heavily exposed to falling oil and energy prices and may be unable to sustain growth from other sources.

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However, BRIC economies have ‘large trade surpluses and foreign exchange reserves that make them more resilient to the crisis’. Additionally, the growing middle classes in these economies and their increasing purchasing power will help to shore up economic growth. ‘The crisis is also expected to remove the danger of inflation making life easier for BRIC consumers and allowing governments to ease interest rates, fuelling further growth.’ According to Newsweek, for example,  China’s retail sales grew by 15% in February this year. The article predicts that the BRIC economies will together be larger in dollar terms than the original G7 by 2027. The date for this milestone achievement has even been brought forward by the author of this article – such is his firm belief that domestic demand in those economies are proving that the notion of decoupling ‘is alive and well’.

Despite the fact that the BRIC economies may not be as badly affected by the crisis as the West, they are by no means completely immune. And where these economies are affected the West may also see consequent negative knock-on effects. This is the flip side of an economy in which decoupling is not as relevant as we might have hoped in today’s economic climate.

As cheap imports from China fall as a result of closing Chinese factories and global demand, the era of falling product prices for the West will be over.  Our spending has been funded largely be foreign money which is drying up due to the recession. Western companies and pension funds are global companies, investing in these emerging economies. It was hoped that that the BRICs could be a cushion for the western world and we might be able to export our way out of the recession. Some economists argue that ‘it is clear that this is no longer the case’.

Let us not forget that the BRIC economies are by no means wealthy by the standards of the West despite their recent history of significant growth and a global recession therefore bodes particularly poorly for the enduring levels of poverty that exist in these countries: ‘recession will be painful for millions even billions of the people in the BRIC countries – people who thought they were now in a world where they could feed their families. Our recession will mean they can’t’.

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