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Brazil and BRIC beat forecast of the man who coined the term

Monday, December 5th 2011 - 05:22 UTC
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“Growth economies” according to Jim O’Neill  “Growth economies” according to Jim O’Neill

Ten years ago this week, Jim O’Neill, chairman of Goldman Sachs Asset Management, coined the term BRIC, elevating the profile of four countries, Brazil, Russia, India and China, that he thought were poised to become “growth economies.”

O’Neill argued at the time that these countries contributed 8% of global GDP and that in 10 years, their economies would account for about 14%. They’re now at 18 to 19%.

Looking ten years back O’Neill said this week he was surprised at how well Brazil had done, overtaking Italy to become the seventh-largest economy in the world.

“I found it really easy to be bullish about Brazil over the past decade,” he said. “I describe myself now as being a little bit more reserved. The biggest risk is if inflation were to get out of hand. There is no way you’re going to get the continued increases among the middle class if that happens.”

By Brazilian standards, he noted, inflation is low. Even if some analysts think it is above the 6.5% target rate, the central bank cut interest rates last week for the third time this year, a sign it is not concerned about inflation.

Francisco Alzuru, managing director of emerging market research at Hansberger Global Investors, said countries like Brazil and Mexico had reduced their debt-to-GDP ratios significantly in the last decade, to levels better than in the developed world. And both countries, he said, had learned hard lessons from the crises of the 1990s that drove down the value of their currencies and pushed up the cost of borrowing

This time, they have growth from the benefit of sound macroeconomic policy,” he said. “I don’t want to imply that Latin America is risk-free and we can invest with our eyes closed. But from a macroeconomic perspective, the boom and bust should be better managed.”

In a sign of how far Latinamerican economies have come since the late 1990s, Brazil’s finance minister Guido Mantega told visiting IMF chief Christine Lagarde the country would not make any decision on aid to Europe and was waiting to see how the EU and the US manage their crises. It wasn’t too long ago that Brazil was on the receiving end of such bailouts.

Categories: Economy, International.

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