Wednesday, November 5, 2014

Nouriel worries about BRIC economies

Major emerging countries are also in trouble. Of the five BRIC's economies (Brazil, Russia, India, China, and South Africa), three (Brazil, Russia, and South Africa) are close to recession. The biggest, China, is in the midst of a structural slowdown that will push its growth rate closer to 5% in the next two years, from above 7% now. 

At the same time, much-touted reforms to rebalance growth from fixed investment to consumption are being postponed until President Xi Jinping consolidates his power. China may avoid a hard landing, but a bumpy and rough one appears likely. The risk of a global crash has been low, because deleveraging has proceeded apace in most advanced economies; the effects of fiscal drag are smaller; monetary policies remain accommodative; and asset reflation has had positive wealth effects. Moreover, many emerging-market countries are still growing robustly, maintain sound macroeconomic policies, and are starting to implement growth-enhancing structural reforms. 

And US growth, currently exceeding potential output, can provide sufficient global lift—at least for now. But serious challenges lie ahead. 

Private and public debts in advanced economies are still high and rising—and are potentially unsustainable, especially in the euro zone and Japan.