US Economy No Longer Getting Trounced by BRICS

Author Ruchir Sharma

Monday, 08 Apr 2013 07:08 AM

By Douglas P. Hulette

Author Ruchir Sharma notes that the fast-growing BRICS and other emerging economies are slowing down — and soon their growth rates may be little more than that of the United States.

Sharma, author of “Breakout Nations: In Pursuit of the Next Economic Miracles,” told CNN’s Fareed Zakaria that the BRICS — the emerging economies of Brazil, Russia, India, China and South Africa — that boomed during the past decade are running into their own domestic problems.

“These markets are disappointing because growth expectations are not being met,” said Sharma, who is head of emerging market equities at Morgan Stanley Investment Management. “The most outstanding statistic I find is this: In the coming few years, I think … these countries are unlikely to grow much faster than the U.S. — at about 2.5 percent or so."

He sees China as a special example, because the economy has slowed after growing 10 percent yearly for 35 years. And the problem, he explained, is debt, which he said is shaping up as a bigger problem than in the United States.

“Here is my concern about China,” he said. “In their desire to keep growing at what is a relatively fast growth rate, they are creating far too much debt to do so.”

He points out that until about five years ago, it took roughly $1 of debt to generate $1 of China’s growth; but in the last five years, it's taken more than $3 of debt to generate $1 of growth.

People don't think of China as indebted, Sharma noted, because of the country’s huge foreign exchange reserves. But China’s total debt, not just the government’s, is 200 percent of the gross domestic product (GDP) — “the highest for any developing country in the world today.”

Sharma added that the comparable radio for the United States is 350 percent, but that, adjusting for the big difference in per-capita income between the two countries, “I would say China's debt problem today is more worrisome than that of the U.S.”

In fact, Sharma maintained that the United States is increasingly attractive because it seems like “the best house in a bad neighborhood, and especially in the developed world.”

And, he pointed out, the U.S. economy is holding its own in terms of its percentage of global GDP.

The U.S. economy is stablizing and "still at the leading edge," he explained, while "the rest of the world is doing quite poorly."

"A lot of cutting edge production in the world is still coming out of the U.S., even compared to Japan," he noted. "What the U.S. has done is really remarkable because it spends so much on software and ... cutting edge innovation."

Meanwhile, at the fifth annual summit of the BRICS nations late last month, the leaders of China, Brazil, Russia, India and South Africa vowed to achieve faster growth and reforms in global governance, MarketWatch reported. South Africa, a much smaller economy that is seen as a gateway to resource-rich Africa, was admitted to the group two years ago.

The five BRICS nations account for 42 percent of global population, 20 percent of output and a majority of growth in the world economy, MarketWatch reported.

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

http://www.moneynews.com/StreetTalk/Ruchir-Sharma-China-BRICs-America/2013/04/08/id/498246?s