Even as western economies flounder and flutter in the wind, it is emerging economies that have really risen to the occasion with some very strong second quarter figures coming forth from economies such as Brazil and India. There is also Australia in the mix, and it is the exception as developed economies go. Their performance is in stark contrast to that of some of the biggest economies all over the world, such as the US economy. Let us talk about some of the best performing economies one at a time.
The land of sun, surf, sand and the Carnival de Rio is having a real blast, and it’s not just restricted to the beaches of Brasilia. If Q1 was a sign of the resilience of the Brazilian economy in the face of an economic slowdown, Q2 was an affirmation of the innate strength of Brazil’s fundamentals. The year on year growth figure has been reported as 8.8%, which beat estimates of 7.9% quite comfortably and measures up to a robust 9% in the first quarter quite easily. But unemployment is a concern on the streets, as always, and the Banco Central do Brasil has already increased the SELIC rate (overnight lending rate) on multiple occasions this year to a figure of 10.75% right now. The government expects to at least hit 7% growth this next quarter even though fears of asset bubbles and overly strong growth hiding cracks remain.
Keeping in line with the tradition of talking about BRIC economies, our focus now shifts to India which reported an 8.8% growth rate in Q2 year on year as compared to 8.6% in the first quarter. This string growth can be attributed to the robust performance of key sectors such as manufacturing (up by 12.4%), services (up by 9.7%) and construction (growth of 9.7%) and another determinant of growth for this still predominantly agrarian economy is the monsoon season, that has been kind for the nation at large and helped settle food prices in an affordable band. But with great growth comes the serious possibility of high inflation and the RBI must guard against this.
Australia has further consolidated growth as seen in the first quarter this year with the economy swelling by 1.2% when compared quarter on quarter and 3.3% year on year. This surge in growth could be put down to an increase in the volume of exports to the tune of 5.6% and most of this was in the mining sector. The consensus for the Australian economy is one of a rise in investment, what with the Reserve Bank of Australia being very bullish and raising interest rates to 4.5%, the only one of the G20 nations to do so.
The renaissance of the Brazilian and Indian economies affirms the opinion that the drivers of the global economy will continue to be the emerging markets that still have elbow room for penty of growth. But inflation is a very serious threat and one that these economies must guard against if a global economic recovery is to be a possibility.