Is BRICS GDP Growth a Source of Shocks or an Amplifier of Global Growth Responses? What Are the Policy Implications for South Africa?

Abstract

Evidence in this chapter shows that BRICS is a big magnifier of G7 economic growth responses to positive demand shocks. In addition, the propagation effects by BRICS GDP growth exceed those from BIITS economies. The BRICS amplify the effects of adverse economic shocks such as the global financial crisis and economic policy uncertainty. Moreover, commodity price shocks raise the G7 GDP growth and the rise is amplified by DGP growth in the BRICS, EMEs (excluding China) and BIITS. Large negative BRICS GDP growth shocks lead to large declines in G7 GDP growth compared to smaller negative GDP grwoth shocks. This suggests that global business cycles impact each other in an asymmetric way, especially due to negative GDP growth shocks. These asymmetric responses suggest that economic growth in advanced economies is more likely to remain subdued, prompting monetary policy to be more accommodative for a longer period. Domestically, this means that the interest rate differentials will be driven more by adverse factors to the inflation outlook. Chinese growth is important for sustaining high South African GDP growth in response to positive US, euro area, G7 and Chinese GDP growth shocks. Robust Chinese growth amplifies the response of euro area GDP growth response to positive US GDP growth shocks. This suggests these economies will grow more when US GDP growth occurs concurrently with robust Chinese growth.