FoxBites: Another BRICS in the fall?

By FoxBites.

Abstract: In this edition – BRICS, Brazilian Debt and the Global Economy.

We’re always keeping an eye on the BRICS countries – they represent an interesting new pillar of the global economy. Also, because, as they say, a chain is as strong as its weakest link; and BRICS has some weak links.

China is slowing down and getting the global markets a little flustered – even though its rate of growth is still enviable – and its BRICS partner, South Africa is feeling the drag. Russia is reeling – the brunt of targeted sanctions and a sluggish oil price. India, though, is ticking along healthily.

It’s Brazil that needs special attention. It’s now in recession, and just given a junk credit status. Its current account deficit is almost $90 billion. If the Latin American debt crisis of the 1980’s had a major impact on the global economy, in it’s weakened state at the moment, it would take a major hit if Brazil’s sovereign debt crisis explodes. And there’s little reason to be optimistic. On top of rising unemployment, the Rousseff-led government has just announced a $17 billion austerity package. This will win her few friends at home; just how Brazilians respond will be an important flag to watch. An aggressive pushback could inspire politicians to ride the wave of anti-austerity sentiment.

When a pillar of the global economy – such as BRICS – is showing cracks, it’s a definite flag to watch. It could herald a greater likelihood of staying in a ‘U’ shaped recovery, even a shift further into the Hard Times scenario (see the Scenario Gameboard above). Importantly, when the global economy is weak, it is more vulnerable to the effects of a major event that could tumble it into a Forked Lightning scenario. And you don’t want that.

[Originally published in Fox Bites – regular bite-size mindofafox news and scenario flags to keep on your strategy radar]