BRIC Capital Markets Contact: Markus Jaeger +1 212 250-6971, Marco Semmelmann +49 69 910 31711 Global Risk Analysis BRIC Capital Markets Monitor June 2010 Chartbook The economic performance of the BRIC countries throughout the 2008-09 global economic and financial crisis was mixed. While China and India continued to grow rapidly in 2009, Brazilian GDP remained flat and Russia suffered a large contraction. The present strong growth momentum in Brazil, China and India has already led these countries to tighten monetary policy and/or scale back (extraordinary) liquidity operations introduced during the height of the crisis. By contrast, the Russian central bank has continued to lower interest rates. In terms of economic fundamentals, the BRICs have largely emerged unscathed from the global crisis. While many developed economies are struggling with large fiscal deficits and rising government debt levels, there are no near-term sustainability concerns in the BRICs. Public debt in India remains elevated, but manageable, underpinned by strong growth. Brazil’s public debt is set to decline gradually in spite of strong election-driven spending increases. China’s debt remains very low (even if contingent liabilities are added to the government stock) and fiscal deficits small. Last but not least, Russia has had the wisdom to save money, allowing it to finance its deficits largely by drawing down government savings. The medium-term outlook, more than in any other BRIC economy, will depend on future energy prices. Similarly, the external position of the BRIC countries remains solid. All four governments are net external creditors and the BRICs are among the world’s largest holders of official FX reserves. Sovereign foreign debt is very small. Only the Russian government is planning to tap foreign bond markets for meaningful amounts, and even this may not happen if the fiscal deficit continues to narrow. The external position of the private sector varies across the BRICs. China and Russia continue to run current account surpluses, while Brazilian and Indian deficits remain quite manageable. The BRIC economies should continue to register solid economic growth, while many developed economies struggle with elevated private- and/or public-sector debt burdens and greater economic and financial uncertainty. The “performance gap” between the BRICs and the developed markets has widened since the onset of the global crisis. Economic size BRICs rank among top-10 on PPP basis Financial assets BRIC financial markets are less developed 0 100 200 300 400 500 600 Japan EU US EM Asia LatAm Middle East EM Europe Source: IMF GFSR as of April 2010 Bonds, equities and bank assets (% of GDP), as of 2008 Country Nominal GDP % world GDP at PPP 1 United States 14.3 20.5 2 Japan 5.1 6.0 3 China 4.9 12.5 4 Germany 3.4 4.0 5 France 2.7 3.0 6 UK 2.2 3.1 7 Italy 2.1 2.5 8 Brazil 1.6 2.9 9 Spain 1.5 2.0 10 Canada 1.3 1.8 11 India 1.2 5.1 12 Russia 1.2 3.0 13 Australia 1.0 1.2 14 Mexico 0.9 2.1 15 Korea 0.8 1.9 Source: IMF 2009 estimates as of WEO April 2010
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BRIC Capital Markets Monitor June 2010Chartbook
The economic performance of the BRIC countries throughout the 2008-09 global economic and financial crisis was mixed. While China and India continued to grow rapidly in 2009, Brazilian GDP remained flat and Russia suffered a large contraction. The present strong growth momentum in Brazil, China and India has already led these countries to tighten monetary policy and/or scale back (extraordinary) liquidity operations introduced during the height of the crisis. By contrast, the Russian central bank has continued to lower interest rates.
In terms of economic fundamentals, the BRICs have largely emerged unscathed from the global crisis. While many developed economies are struggling with large fiscal deficits and rising government debt levels, there are no near-term sustainability concerns in the BRICs. Public debt in India remains elevated, but manageable, underpinned by strong growth. Brazil’s public debt is set to decline gradually in spite of strong election-driven spending increases. China’s debt remains very low (even if contingent liabilities are added to the government stock) and fiscal deficits small. Last but not least, Russia has had the wisdom to save money, allowing it to finance its deficits largely by drawing down government savings. The medium-term outlook, more than in any other BRIC economy, will depend on future energy prices.
Similarly, the external position of the BRIC countries remains solid. All four governments are net external creditors and the BRICs are among the world’s largest holders of official FX reserves. Sovereign foreign debt is very small. Only the Russian government is planning to tap foreign bond markets for meaningful amounts, and even this may not happen if the fiscal deficit continues to narrow. The external position of the private sector varies across the BRICs. China and Russia continue to run current account surpluses, while Brazilian and Indian deficits remain quite manageable.
The BRIC economies should continue to register solid economic growth, while many developed economies struggle with elevated private- and/or public-sector debt burdens and greater economic and financial uncertainty. The “performance gap” between the BRICs and the developed markets has widened since the onset of the global crisis.
Economic sizeBRICs rank among top-10 on PPP basis
Financial assetsBRIC financial markets are less developed
0
100
200
300
400
500
600
Japan EU US EM Asia
LatAm Middle East
EM Europe
Source: IMF GFSR as of April 2010
Bonds, equities and bank assets (% of GDP), as of 2008Country Nominal GDP % world GDP at PPP1 United States 14.3 20.52 Japan 5.1 6.03 China 4.9 12.54 Germany 3.4 4.05 France 2.7 3.06 UK 2.2 3.17 Italy 2.1 2.58 Brazil 1.6 2.99 Spain 1.5 2.0
10 Canada 1.3 1.811 India 1.2 5.112 Russia 1.2 3.013 Australia 1.0 1.214 Mexico 0.9 2.115 Korea 0.8 1.9
Source: IMF 2009 estimates as of WEO April 2010
DB BRIC Capital Markets Monitor 2
Contents
1. Special section: BRIC trade patterns…..……………………………….. 3
Ownership structure in banking sectorGov’t retains important role
Stock of credit to the private sectorChina vs the rest
Banking sector claims on governmentBrazil & India vs China & Russia
Growth of credit to private sectorChina stands out
Real deposit growthChina stands out
M2“Financialisation” much higher in China & India
0
20
40
60
80
100
120
140
160
180
200
Brazil Russia India China
M2 % of GDP, as of July 2009
Source: IFS
0
25
50
75
100
Brazil China India RussiaForeign Public Private
% of banking assets
Sources: Fitch, DB Research
0
20
40
60
80
100
120
140
00 01 02 03 04 05 06 07 08 09
Brazil Russia India China
% of GDP
Source: IFS
-10-505
101520253035
00 01 02 03 04 05 06 07 08 09
Brazil Russia India China
Real deposit growth, % yoy
Source: IFS
-20
-10
0
10
20
30
40
50
60
00 01 02 03 04 05 06 07 08 09
Brazil Russia India China
Credit to private sector growth, % yoy
Source: IFS
0
10
20
30
40
50
60
00 01 02 03 04 05 06 07 08 09
Brazil Russia India China
% of total assets
Source: BIS
DB BRIC Capital Markets Monitor 12
Abbreviations
Abbreviations
BIS = Bank for International SettlementsIIF = Institute of International FinanceIMF = International Monetary FundIFS = International Financial Statistics (IMF)WEO = World Economic Outlook (IMF)GFSR = Global Financial Stability Report (IMF)UN = United NationsMSCI = Morgan Stanley Capital International