BRICS: The 2008 financial crisis and economic performance

Abstract

The 2008 global financial crisis (GFC) resulted in a deterioration of the economic condition in developing countries with lower growth of per capita GDP, a decline in the share of exports of goods and services in GDP, and a worsening of the external balance. After a limited initial impact, growth rates declined in all the economies and were substantially lower in all the BRICS countries in the period 2015–2019 than before the crisis. Two of them, Brazil and South Africa, experienced a drop in per capita GDP during 2015–1019. Export performance suffered and the external balance worsened for all BRICS countries. The BRICS share of world GDP increased mainly because of the rapid growth in China and to a lesser extent in India. The relative size of per capita GDP in Brazil, Russia and South Africa decreased between 2001–2007 and 2015–2019. Furthermore, the average per capita GDP in Brazil and South Africa decreased compared to that of the world. BRICS, however, fared better in trade. Both their share of world trade and the share of trade in their GDP increased. The BRICS countries have strong trade links with other developing countries and have become more stable after the GFC, thereby contributing to the performance of the global economy. There are strong growth linkages among the member countries. Trade relations are dominated by China. BRICS, however, failed to comply with G20 commitment made at the 2014 Brisbane summit to raise the rate of growth by 2% by 2018. The authors undertook a time series analysis to investigate the relationship between growth of per capita income, the share of gross fixed investment in GDP, the share of exports of goods and services in GDP, and the share of external balance in GDP. We found out that usually, but not for all BRICS countries, capital formation had a positive effect on growth, while the external deficit had a negative effect.