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Consumer will lead Brics over next decade, says LGIM

Emerging markets1Consumers will lead growth in the Brics (Brazil, Russia, India and China) economies over the next decade rather than production, an emerging market strategist predicted.

Brics growth will also slow down but will still be very strong compared to the West, says Legal & General Investment Management’s (LGIM) Brian Coulton.

LGIM’s analysis shows that accelerated capital accumulation was a key driver of growth in the past decade, largely funded by rising domestic savings rates.

Faster population growth also helped as well as improved efficiency as these economies converged towards higher income levels in the west.

But demographic trends show that the number of people of working age in the population will slow sharply in China, and actually fall in Russia.

A key conclusion is that the sharp increases in investment ratios that boosted capital accumulation in the last decade are highly unlikely to be repeated.

“Both these factors will act as a brake on growth,” Coulton said.

High levels of investment changed the dynamics of global capital goods and commodities markets significantly, but a big change over the next ten years will be a sharp decline in investment growth.

Coulton said: “In the last decade Chinese and Indian consumers have foregone a rising share of income to fund growth but in the next ten years this pattern is likely to be reversed.

“If the last decade was the story of Brics as producers, the next decade will be the story of Brics as consumers. The effects will be felt across the globe.”

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