The global financial crisis slows the growth of major emerging markets

The global credit crisis begins to pass bill to a group of countries in recent years was a major engine of world economy: Brazil, Russia, India and China.

The overall growth this decade has been propelled by these countries, so-called BRIC, and by the United States. When the latter fell victim to the weakness of its financial system, it was expected that developing countries fill the vacuum. However, the economies of Brazil, Russia, India and China are losing momentum as consumers in those countries feel the hardships emanating from the West.

In Russia, for example, credit that has driven consumption is shrinking. In India, the work outsourced by Western financial companies are declining. Brazil still holds good downpour, but the raw material prices are dropping. And in China, the focus of world attention in recent years, a collapsing stock market and falling home prices are making consumers think twice before making purchases. The growth of these economies remains well above the U.S. or Europe. These indicators, however, suggest that, on their own, may not prevent the downturn of the global economy.

Yan Jian, a businessman from Shanghai, and accuses the coup. Yan said her business exports of toys and clothing has already been adversely affected by the reduction in orders from the U.S. market. Yan postponed the renewal of the new department who bought last year. "Things could deteriorate further in the near future," he says. "I have to take care spending as much as you can."

If this attitude spreads, it would be bad news for the global economy. Although consumers in the four major emerging economies are much poorer than the average American or European, its growing appetite for having refrigerators, cars and flat screen televisions during the past eight years has represented a growth in global demand almost as big as the U.S., according to securities firm Goldman Sachs. In coming years, it is expected that the demand for these countries to surpass the U.S. and converges with the demand of the Group of Seven most industrialized countries.

"That is the biggest concern: that the crisis developed in places like U.S. and Europe to have an impact on emerging economies," says Fred Hu, managing director of Goldman Sachs. "These savings can no longer depend on export growth or increases in the prices of raw materials," he adds.

In general, consumers continue to spend even when they sink the financial markets. However, the turbulence in these large emerging economies are spreading. The main Russian stock exchange has been closed since Wednesday due to a massive flight of funds. In Brazil, the real has fallen sharply in recent days, which makes imported products such as wine and iPods. The consumption in China continues at high levels, but has been weakened.

In some of these countries, credit is shrinking as in the developed world. In Russia, easy credit and increases in real wages have spurred a boom in consumption. However, credit is running out, as banks with little cash down more stringent conditions for granting automobile loans, mortgage and otherwise.

Sales of new cars, for example, grew 22% in September. The figure may seem stratospheric, but represents a decrease compared to the expansion of 50% of the two previous months, and is the lowest level since 2001.

The retailers in India, where the stock market has also received a beating, they also are preparing for difficult times. It is expected that consumers will spend less this year. In addition, the U.S. financial sector, which is at the epicenter of the global crisis, is a major customer for companies outsourcing and call centers in the country. Sales of autos, which averaged an annual growth of 20% over the past five years, have slowed to 8% this year.

China also boasts some worrying indicators. Although retail sales have grown between 15% and 16% in recent months, few economists believe the official figures, especially by the weakening of sales of expensive goods. Sales of vehicles, for example, fell in August and September, reversing years of double-digit growth. In turn, the number of passengers on Chinese airlines has fallen every month since May.

The two weakest points of the Chinese economy appears to be exports to U.S. and the real estate market. The prices of buildings have been weakened following a big increase last year. Although few cities have experienced outright declines in prices, buyers are kept away. Macquarie Securities, a financial services firm, estimates that the transactions of properties in big cities have declined between 40% and 60% in recent months.

Despite these concerns, few believe that China faces a collapse in consumption. Hu, Goldman Sachs, said that part of the slowdown is due to the restrictions the government imposed to contain inflation. Beijing has begun to reverse the course, cutting interest rates twice last month. That looks like their response during the Asian crisis of 1998 when China cape the storm thanks to a swift government action to stimulate the economy. "The government will have to be very alert," said Hu. "You can not take risks in the global environment."

For now, the emerging economy that seems to better endure is Brazil.

Consumption, thanks to a boom of credit, has helped the economy grow 6% so far this year. Sales of cars rose 10% in September compared with August and Brazilians are heading to spend U.S. $ 10.000 billion with their credit cards.

Some economists warn that consumer credit is likely encarecer√°. "The facts do not show any significant slowdown," says Marcelo Carvalho, an economist at Morgan Stanley. "But we think it will come."


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