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BRICS Crumble

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‘The bigger they are, the harder they fall’ has always been true and is seemingly even more so today with regard to the BRICs (Brazil, Russia, India and China). The Organisation for Economic Co-Operation and Development(OECD) shows that there is a divergence with regard to growth patterns in economies around the world. While theBRICs are suffering largely from a slow-down in their economies and contraction in many cases, the Western world and in particular the UK and the US as well as Japan are giving off signals that their economies are slightly on the up.

The OECD has used the Composite Index of Leading Indicators (CLI) to establish the growth patterns that are growing further and further apart, creating a two-tier economy in the world today growing at different speeds. The Index is published monthly and it is used as an indication as to the direction of an economy over the next few months. It is made up of ten elements that show changes in economic activity. These elements are:

  1. The number of hours that are worked on average by a worker in the manufacturing field
  2. The number of people that apply for unemployment insurance for the first time.
  3. The number of new orders that are placed with manufacturers in the economy in question (consumer goods and materials)
  4. The lead-time between order being placed and the supply of the goods to vendors
  5. The number of capital goods that are being ordered for the first time
  6. The number of applications for building permits for residential properties
  7. S&P 500 stock index
  8. The money supply (inflation-adjusted)
  9. The difference between long and short-term interest rates
  10. Consumer confidence regarding the economy.

     

    OECD

    OECD

The results from the data published today by the OECD show that there are improvements in most major OECD countries, but that emerging countries are slowing down especially in the largest emerging countries in the global economy.  Not surprisingly given recent fears that the Chinese economy is indeed contracting, the OECD outlines a slow-down in economic activity there. However, this is in marked contrast to today’s figures that have been released regarding the enormous surge in imports that has taken place, showing signs that the Chinese economy has already bottomed out and is going to now improve for the second half year of 2013.The data from both sources is in marked contrast and contradiction and seems somewhat confusing. Further data that will be revealed tomorrow by the Chinese administration may rectify the economic situation and bring it in line with the OECD figures.

OECD Growth Outlook China

OECD Growth Outlook China

The CLI is normally taken to represent the trends that will be experienced from anywhere between6 and 9 months after the indicator is published and is an indication of the economic activity that is to come. The business cycle usually follows the CLI 6-9 months after. That makes it all the more surprising that Chinese figures show completely the opposite today and either the OECD has got it all wrong (very wrong) or the Chinese have been faking it yet again with regard to import surges that would show signs of a strengthening economy. Some are saying that this shows signs that the Chinese economy has now been through the worst of it, but it certainly raises questions, meaning that the OECD has been fouling up its data (which seems surprising).

For Brazil, Russia and China the OECD shows that the outlook for the economic cycle is losing momentum and slowing down. It is only in India that there is a ‘tentative positive change’.

The CLI for the UK, the USA and Japan shows that there are signs that their economies are proving to firm up somewhat. The EU has a growth that is gaining momentum.

OECD Growth Outlook USA

OECD Growth Outlook USA

The data for Western economies is in line with the OECD’s results. The USA showed its best trade deficit since 2009 according to data released a few days ago ($34.22 billion for June 2013) and that means the possible improvement to come in the US economy, corroborated by the OECD predictions from the CLI. The UK saw its retail sales increase to asix-month record in July and Gross Domestic Product increased by 0.6% between April and June this year, suggesting a return to better times, also in line with the OECD findings.

Russia is showing a contracting GDP (0.07%-fall in the first quarter of 2013).Despite oil prices, Russian economic growth is stagnating. Growth in May stood at 7.7% and then it fell to its lowest level for nearly fiveyears in June and reached just 0.9%. There is also less housing being built and a drop in trade.  The most recent figures issued by the Central Bank of Russia show that there was a trade surplus in June 2013 amounting to $13670 million, which is a drop from May’s figure of $15025 million.

OECD: BRICs

OECD: BRICs

The major emerging countries and the Western countries have two-speed economies that are going in different directions right now. The Western nations are improving and stabilizing, while the emerging countries are slowing down. Will this have a knock-on effect on the stability that is showing through in the Western economies?

The doubt about the discrepancy between published data from different sources is again cause for concern as to just how some are calculating their figures.

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