Where are the next economic miracles

In 2001, a Goldman Sachs managing director named Jim O’Neill coined the acronym BRICs to define the big four emerging markets of Brazil, Russia, India and China, and what that meant for the global economy from 2000 to 2010.  Times have changed since 2001. A host of other definitions to define new growth markets has emerged. City calls them the 3Gs for Global Growth Generators. Ruchir Sharma, managing director of Morgan Stanley’s emerging markets division calls them Breakout nations. These nations go beyond the big four. They are where the new economic miracles will take place.

“A breakout nation is a nation that will grow above expectations, and will grow more than nations with similar per capita income,” Sharma said in a telephone interview.

As an investment bank, Morgan Stanley is currently underweight Brazil, Russia and China. Within the BRICs, only India stands a 50/50 chance of beating the growth of nations’ with similar income levels. 

Meanwhile, Morgan Stanley is overweight Indonesia and Turkey, two economies emerging market investors liked for the much of the past year. Turkey more for its high yielding, investment grade sovereign bond market, and Indonesia as a growth investment with a bigger population than Brazil and just as much as a strong commodity play. Indonesia was the best performing emerging market in 2011 and is one of a handful of nations whose economies will surpass a trillion dollars in the next few years. Brazil, by comparison, is already there. Indonesia, on other hand, is breaking out.

Since 2000, American and European investors have been pouring money into emerging markets. They’ve been following the analysis of dozens of pundits and bank analysts that pointed to future growth coming from outside of the Western world. The total amount of funds flowing into emerging market stocks grew by 92% between 2000 and 2005, and then by 478% between 2005 and 2010, Sharma noted in his book.

But that 10 year trend is changing.  China’s economy is maturing and is more middle class than lower class, with per capita income along the rich coastal cities of around $20,000. That makes that part of China more like middle class Czech Republic than low income India or Vietnam.

Surprisingly, the U.S. might be one of the next economic miracles among developed economies. While the Western world’s status and leverage relative to the rest of the world is waning, its prosperity can only increase because richer neighbors make better customers. China imports of U.S. goods are breaking records year over year.  The U.S. remains the world’s technological innovator, and that’s not going to change in the next decade.

“The growth game is all about expectations,” Sharma told me. “It’s a matter of how investors handle disappointment. The new breakout nations depends on how much money the people are making in those countries and whether or not they can produce GDP greater than the average country in that income level.”

In the $20,000 to $25,000 per capita range, where GDP averages 3%, the two best chances of becoming the next economic miracles are Czech Republic and South Korea. In the middle income range of $10,000 to $15,000 per capita, the one nation seen beating the averages is Turkey, followed by Poland. But for those poorer nations with national per capita incomes of $5,000 or less, China is on the fence. 

The world economy is at a revealing moment. As in the U.S. and Europe, the emerging economies are faced with a “new normal.” The basic laws of economic gravity are pulling the big four emerging markets back to earth. The miracle might very well behind us.

4/10/2012

http://www.forbes.com

COMPREHENSION

Exercise 6.

Give the definitions for the following. What are these countries?

1. BRICs

2. 3Gs

3. breakout nations

Exercise 7.

Find in the text what countries the writer relates to, using the following wording to define their economic growth?

1. … go beyond the big four.

2. … will grow above expectations.

3. … will grow more than…

4. … stands a 50/50 chance of beating the growth of …

5. … is breaking out.

6. …’s economy is maturing.

7. The one nation seen beating the averages is …, followed by ….

8. … prosperity can only increase.

9. … growth is going to slow naturally as a result.

10. … is on the fence.