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GRANT THORNTON INTERNATIONAL BUSINESS REPORT 2012The BRICs: propping up the globaleconomyThis short report looks at the ri...
No longer emerging?The collective strength of the BRIC economies                       Of course, when measured on a per c...
FIGURE 2: BRICS TAKING A LARGER SLICE OF THE GLOBAL ECONOMY                                      PERCENTAGE OF GLOBAL OUTP...
Business confidenceAgainst this backdrop of rapid economic growth,business leaders in the BRIC economies remainmore optimi...
“Economies such as China are catching up fast.                                                            With growth rate...
“Finding the right workers is a serious issue for                                                           businesses ami...
Inflation                                              FIGURE 7: INFLATION REMAINS A CONCERN                              ...
FIGURE 9: RISE OF THE REDBACK?PERCENTAGE OF BUSINESSES THAT SUPPORT THE US$ AS THE GLOBAL RESERVE CURRENCY                ...
Investment                                             FIGURE 11: INVESTING FOR FUTURE GROWTH                             ...
The Grant Thornton International Business Report (IBR) is a quarterly survey of around 2,800 senior executives in   privat...
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The BRICs: propping up the global economy

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This short report looks at the rise of the
BRIC economies, their growing importance
to the global economy and the trends that
will shape their performance. It draws
upon the International Business Report
(IBR) – a quarterly survey of business
leaders, covering 11,500 businesses in
40 economies on an annual basis – as
well as forecast data from leading
global economists.

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Transcript of "The BRICs: propping up the global economy"

  1. 1. GRANT THORNTON INTERNATIONAL BUSINESS REPORT 2012The BRICs: propping up the globaleconomyThis short report looks at the rise of theBRIC economies, their growing importanceto the global economy and the trends thatwill shape their performance. It drawsupon the International Business Report(IBR) – a quarterly survey of businessleaders, covering 11,500 businesses in40 economies on an annual basis – aswell as forecast data from leadingglobal economists.
  2. 2. No longer emerging?The collective strength of the BRIC economies Of course, when measured on a per capita basis,(Brazil, Russia, India and China) is of ever the GDP of these economies still lags behind that ofincreasing importance to the strength of the global the G7. However, on an absolute basis, they areeconomy. Whilst mature economies across the catching up fast. The BRICs are forecast to accountglobe grapple with towering budget deficits, for 37% of global growth in the period 2011-16,anaemic growth and rising unemployment, the with China alone contributing 22%. This willBRICs are expanding rapidly, lifting people out of increase the BRIC share of global output from 19%poverty and driving the global economy. The to 23%. Meanwhile, the proportion of globalmanner in which leaders in the troubled eurozone output produced by the traditional powerhouses inrecently pleaded with these markets for funds to the G7 economies will fall from 48% to 44% overhelp alleviate the sovereign debt crisis marks yet the same period. 2another definitive step in the transition of economicpower from ‘west’ to ‘east’. FIGURE 1: BRICS BUILDING MOMENTUM Indeed, at a recent high-growth markets GDP PERCENTAGE GROWTH RATESconference run by the The Economist, the manwho first coined the BRICs acronym around adecade ago, Jim O’Neill, now chairman of 2.3 2.1Goldman Sachs Asset Management, described as Canada“idiotic and insulting” the use of emerging marketsin relation to the BRICs. He argues that theseeconomies are “increasingly the driver ofeverything positive in the world economy” and that 0.8 1.5they should be grouped alongside Indonesia, UnitedMexico, South Korea and Turkey as “growth Kingdommarkets”.1 1.7 2.0 United States 1.6 1.3 eurozone 3.0 4.4 Brazil 2011 – mature economies 2011 – BRIC economies1 Source: GTUK International Markets 2012-16 http://www.grant-thornton.co.uk/thinking/emergingmarkets/2 Source: IMF 2011 SOURCE: ECONOMIST INTELLIGENCE UNIT 20112 The BRICs: propping up the global economy
  3. 3. FIGURE 2: BRICS TAKING A LARGER SLICE OF THE GLOBAL ECONOMY PERCENTAGE OF GLOBAL OUTPUT Other: 33% BRIC: 19% 2011 G7: 48% 4.0 4.0 Russia Other: 33% BRIC: 23% 2016 G7: 44% 0.2 1.5 Japan 9.8 8.0 China7.6 8.3India SOURCE: IMF 2011 The BRICs: propping up the global economy 3
  4. 4. Business confidenceAgainst this backdrop of rapid economic growth,business leaders in the BRIC economies remainmore optimistic about the outlook for theirrespective economies compared with peers inmature markets. The latest IBR quarterly resultsshow net 34% of business leaders indicatingoptimism over pessimism for the next12 months, compared with -12% in the G7. Business leaders in mature markets remainedcautiously optimistic about their economies upuntil Q2 of this year. However, by Q3 theslowdown in the United States economy, the falloutfrom the tsunami in Japan and the sovereign debtcrisis in the eurozone saw optimism slide. WhilstBRIC business confidence ticked downwards in FIGURE 3: BRICS BUOYANTboth Q2 and Q3, it recovered again in Q4 to stand NET PERCENTAGE OF BUSINESSES INDICATING OPTIMISM LESS THOSE INDICATING PESSIMISMfully 46 percentage points higher than in the G7. 60 Clearly there are a number of issues facing the 50BRIC economies. In Russia, oil and gas make up 40 30two-thirds of exports and the price of oil will need 20to be US$120 a barrel if the budget is to balance. 10In Brazil, the strong real has hurt exporters and 0growth was flat in the third quarter of 2011. In -10 -20China housing sales, construction and exports have Q4-2010 Q1-2011 Q2-2011 Q3-2011 Q4-2011all slowed significantly in recent months. Whilst in BRIC 54 57 44 25 34India corruption, inflation and an unwillingness G7 11 27 27 -8 -12to let foreign investment in are all threats to Global 23 34 31 3 0growth prospects. SOURCE: GRANT THORNTON IBR 2012 Further, these markets are now ever moredependent on the global economy with India FIGURE 4: WORRIED ABOUT ANOTHER RECESSION?recently warning that growth was beginning to PERCENTAGE OF BUSINESSES WORRIED THAT THE GLOBAL ECONOMY WILL GO BACK INTO RECESSIONfalter, and top Chinese policymakers describing the India 96outlook as “extremely grim and complicated.”3 Asa result, three-quarters of BRIC business leadersare concerned that the global economy will go back Russia 87into recession over the next 12 months. Businessleaders in India are the most concerned (96%), Brazil 76followed by Russia (87%) and Brazil (76%) withChina the least concerned (66%). BRICs 75 China 66 SOURCE: GRANT THORNTON IBR 20123 Source: Financial Times “India and China voice growth fears” 16/12/20114 The BRICs: propping up the global economy
  5. 5. “Economies such as China are catching up fast. With growth rates in mature markets not expected to reach pre-recession levels anytime soon, a rebalancing of global economic power is well underway.” XU HUA GRANT THORNTON CHINAOperations FIGURE 5: BRIC BUSINESS BOOMING NET PERCENTAGE OF BUSINESSES EXPECTING AN INCREASE LESS THOSE EXPECTING A DECREASEBusiness confidence in the BRIC economiesextends to their expectations for boosting business 80performance over the next 12 months. Net 72% of 70 60BRIC businesses leaders expect revenues to rise in 502012, compared with 37% in the G7 and 43% 40globally. Similarly, 58% of those in the BRICs 30expect to see their profits rise, well above the G7 20 10(26%) and global average (31%). Meanwhile, 0expectations for exports in the BRICs stand at 24%, 72 37 43 58 26 31 24 17 18slightly above the G7 (17%). Revenue Profitability Exports Businesses in India are the most bullish in termsof increasing revenues in 2012; net 82% expect to BRIC G7 Globalsee an increase, ahead of Brazil (78%), China (74%) SOURCE: GRANT THORNTON IBR 2012and Russia (43%). In terms of profitability, Chinaleads the way with net 61% expecting to see a risein 2012, slightly ahead of Brazil (60%), India (57%)and Russia (42%). Meanwhile export prospects arefar higher in India (36%) and China (28%) than inBrazil (16%) and Russia (6%). The BRICs: propping up the global economy 5
  6. 6. “Finding the right workers is a serious issue for businesses amid near record low unemployment. Businesses urgently require more skilled workers to fuel growth.” MADELEINE BLANKENSTEIN GRANT THORNTON BRAZILEmployment FIGURE 6: HIRING PLANS STRONG, BUT WHERE ARE THE SKILLED WORKERS? 1 NET PERCENTAGE OF BUSINESSES EXPECTING AN INCREASEEmployment prospects in the BRIC economies 2 NET PERCENTAGE OF BUSINESSES REPORTING AN INCREASE 3as a whole remain robust; net 45% of businesses PERCENTAGE OF BUSINESSES CITING A LACK OF SKILLED WORKERS AS A CONSTRAINT ON GROWTHincreased staff levels in 2011 and a further 41% 45expect to do so again in 2012. By contrast, even as 40jobs were shed in the public sectors just 22% of 35 30business leaders in the G7 boosted staff levels over 25the past 12 months, whilst 26% expect to do so in 202012. 15 Rather than the challenge of unemployment 10 5which many mature governments are grappling 0with, businesses in the BRIC economies are faced 45 22 25 41 26 27 36 26 28with a shortage of skilled workers; 36% of these Employment – past Employment – next A lack of skilledbusinesses believe an inability to find the right 12 months1 12 months2 workers3workers will act as a constraint on expansion plansover the next 12 months, well above the level BRIC G7 Globalobserved in the G7 (26%). SOURCE: GRANT THORNTON IBR 20126 The BRICs: propping up the global economy
  7. 7. Inflation FIGURE 7: INFLATION REMAINS A CONCERN HOW WORRIED ARE BUSINESSES ABOUT EFFECT OF INFLATION ON GROWTH; LAST REPORTED OFFICIALInflation remains a key challenge for the BRIC INFLATION RATEeconomies. In India the central bank has raised 100interest rates 13 times in 19 months to try and curb 90double-digit rises in consumer prices. In Brazil, 80despite recent easing, the rate inflation remains at 706.6% well above the target of 4.5%. In China, 60 50inflation peaked at 6.4% in June but has since 40dropped to 4.2%, although the expected loosening 30of monetary policy may see this climb again. In 20Russia, heavy fiscal spending ahead of the elections 10 0next year is likely to keep the rate well above 6%.4 94 9.3 80 6.0 68 – 66 6.5 58 4.1 The majority of business leaders in the BRICeconomies are concerned about the impact of India Russia BRICs Brazil Chinainflation on their respective economies. 68% cite it Worried about inflation Official inflation ratesas a concern across all four countries, but this SOURCE: GRANT THORNTON IBR 2012/EIU 2011ranges from 94% in India to 58% in China. These figures are supported by the IBR whichsuggests that net 38% of businesses expect to FIGURE 8: WAGE-PRICE SPIRAL DANGERS NET PERCENTAGE OF BUSINESSES EXPECTING TO INCREASE SELLING PRICES/RAISE SALARIES OVERincrease selling prices over the next 12 months, NEXT 12 MONTHScompared with just 18% globally. In India (60%) 40and Brazil (44%) especially prices are expected 35to climb. 30 A further 21% of businesses expect to increase 25salaries above the rate of inflation, compared to 2014% globally. However, there are big variations 15 10between Brazil (40%) and India (35%), compared 5with China (15%) and Russia (4%) on this 0measure. 38 11 18 21 10 14 Selling prices Salaries above inflation BRIC G7 Global SOURCE: GRANT THORNTON IBR 2012 “Inflation is perhaps the key issue the Central Bank of India is dealing with right now. With salaries expected to rise over the next 12 months, businesses will be forced to raise prices to maintain real profits.” VISHESH CHANDIOK GRANT THORNTON INDIA4 Source: Economist Intelligence Unit The BRICs: propping up the global economy 7
  8. 8. FIGURE 9: RISE OF THE REDBACK?PERCENTAGE OF BUSINESSES THAT SUPPORT THE US$ AS THE GLOBAL RESERVE CURRENCY Brazil India China Russia BRICs Yes, completely 38 38 13 13 22 Yes, but I would like to see greater diversification 40 41 30 46 35 No 22 14 41 35 33SOURCE: GRANT THORNTON IBR 2012Finance FIGURE 10: STRUGGLING FOR FUNDS PERCENTAGE OF BUSINESSES CITING FINANCE AS A CONSTRAINT ON GROWTHAccess to finance is an area in which businesses inthe BRIC economies struggle more than their peers 40in the G7. Globally, around a quarter of business 35 30leaders cite each of the cost of finance, access to 25long-term finance and a shortage of working capital 20as constraints on their ability to grow their 15business. 10 5 However, in the BRIC economies, 33% of 0business leaders cite a shortage of working capital 30 19 23 32 24 26 33 19 24compared with 19% in the G7. Similarly 32% cite a Cost of finance Shortage of long Shortage of workingshortage of long-term finance and 30% the cost of term finance capitalfinance in the BRICs, well above levels observed in BRIC G7 Globalthe G7. Further, businesses in mature markets feel much SOURCE: GRANT THORNTON IBR 2012better supported by their lenders. Whilst 78% ofG7 businesses feel that their lender is supportive oftheir business, this drops to 66% in the BRICeconomies. The global average is 74%. Interestingly, at a time of such economicvolatility, 35% of BRIC businesses say theysupport the US dollar as the global reserve currencybut would like to see further diversification. Afurther 33% say they do not support the US$ as theglobal reserve currency, with 22% supporting itcompletely. Full support is strongest in Brazil and India(both 38%) and weakest in China and Russia (both13%). At least two in five businesses in Brazil, Indiaand Russia support the US dollar but would like tosee further diversification. In China, more than twoin five businesses do not support the US dollar asthe global reserve currency (35%).8 The BRICs: propping up the global economy
  9. 9. Investment FIGURE 11: INVESTING FOR FUTURE GROWTH NET PERCENTAGE OF BUSINESSES EXPECTING AN INCREASE LESS THOSE EXPECTING A DECREASEInvestment activity in the BRIC economies looksrobust for the next 12 months; net 47% expect to 45increase investment in plant and machinery in 2012, 40 35and a further net 46% plan to expand their R&D 30activity. Across the G7, investment activity looks 25slower with net 31% and net 17% planning to 20increase investment in plant and machinery and 15 10R&D respectively. 5 However, there is evidence that businesses in 0the BRIC economies would like to see their 47 31 35 46 17 25 25 16 17respective governments do more to alleviate the Plant & machinery R&D New buildingchallenges they face in terms of key infrastructure.18% of business leaders cite the poor quality of BRIC G7 Globaltransport infrastructure as a major constraint on SOURCE: GRANT THORNTON IBR 2012their ability to grow their operations, compared tojust 8% in the G7, and 11% globally. A further FIGURE 12: BUSINESS EXPANSION CHOKED17% of BRIC businesses leaders cite information PERCENTAGE OF BUSINESSES CITING INFRASTRUCTURE AS A CONSTRAINT ON GROWTHcommunications technology as a constraint, 15compared with 11% in the G7 and 14% globally. 10 An area in which BRIC governments have been 5investing recently is the bidding for and hosting of 0major sporting events such as the Olympic Games 18 8 11 17 11 14and the FIFA World Cup. Overall 51% of BRIC Transport Informationbusinesses believe these events are important in communications technologyterms of attracting investment. BRIC G7 Global In Brazil, which is to host both the FIFA World SOURCE: GRANT THORNTON IBR 2012Cup in 2014 and the Olympic Games in 2016, 84%of businesses believe such events are an importantdraw for investment. In Russia, which will host the FIGURE 13: TURNING THE EYES OF THE WORLD TOWARDS YOU* PERCENTAGE OF BUSINESSES CITING MAJOR SPORTING EVENTS AS IMPORTANT TOOL TO ATTRACT INVESTMENTFIFA World Cup in 2018, 52% of businessesbelieve these events are important, but in China, Brazil 84which hosted the Olympic Games in 2008 support Russia 52falls to just 39%. BRICs 51 China 39 *this question was not asked in India SOURCE: GRANT THORNTON IBR 2012 “While energy prices will stay consistently high for a long period of time, we hope that in the meantime Russia will be able to lessen the economy’s dependence on raw materials by boosting the export of deeper conversion products instead. Although such reorientation would demand considerable infrastructure investments, it would make the Russian economy more competitive in the long run.” IVAN SAPAROV GRANT THORNTON RUSSIA The BRICs: propping up the global economy 9
  10. 10. The Grant Thornton International Business Report (IBR) is a quarterly survey of around 2,800 senior executives in privately-held and listed businesses all over the world. Launched in 1992 in nine European countries the report now surveys more than 11,500 business leaders in 40 economies on an annual basis providing insights on the economic and commercial issues affecting companies globally. The data in this report are drawn from interviews conducted with businesses in November/December 2011. IBR 2012 METHODOLOGY NUMBER OF INTERVIEWS SIZE OF BUSINESSES Brazil 50 50-499 employees Russia 100 100-499 employees India 100 50crs-1000crs China (mainland only) 100 100-1000+ employees To find out more about IBR and to obtain copies of reports and summaries visit: www.internationalbusinessreport.com. The site also allows users to complete the survey and benchmark their results against all other respondents by territory, industry type and size of business. Participating economies Argentina Malaysia Armenia Mexico Australia Netherlands Belgium New Zealand Botswana Peru Brazil Philippines Canada Poland Chile Russia Mainland China Singapore Denmark South Africa Finland Spain France Sweden Georgia Switzerland Germany Taiwan Greece Thailand Hong Kong Turkey India United Arab Emirates Ireland United Kingdom Italy United States Japan Vietnam IBR BRIC contacts Brazil Russia India China Research Grant Thornton Grant Thornton Grant Thornton Grant Thornton China Grant Thornton International Jobelino Locateli Ivan Sapronov Vishesh Chandiok Xu Hua Dominic King T +55 11 3886 4800 T +7 495 258 9990 T +91 11 4278 7070 T +86 10 85 66 59 78 T +44 (0)207 391 9537 E locateli@br.gt.com E ivan.sapronov@ru.gt.com E vishesh.chandiok@in.gt.com E hua.xu@cn.gt.com E dominic.h.king@uk.gt.comwww.gti.orgwww.internationalbusinessreport.com© 2012 Grant Thornton International Ltd. All rights reserved.References to “Grant Thornton” are to the brand under which the GrantThornton member firms operate and refer to one or more member firms,as the context requires. Grant Thornton International and the member firmsare not a worldwide partnership. Services are delivered independently bymember firms, which are not responsible for the services or activities of oneanother. Grant Thornton International does not provide services to clients.

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