One 2016 characteristic can already be discerned: precisely the countries expected to stride the global economic stage will be tightening their safety belts. Among the rippling effects: a vicious cycle of events ultimately. Here the culprits, victims, and reformers are none other than the supposed BRICS powerhouses: Brazil, Russia, India, China, and South Africa. Each is projected to plunge into, or skirt with, a meltdown of sorts.

Identifying the malaise helps the starting point: 2016 began with all of those countries, except India, on a slithering downward spiral, but with India flirting too close to the fireplace for comfort, given its fundamentalist reawakening. Common to all, except India: currency depreciation against a strengthening dollar, forcing bond repayment problems, in turn, heightening creditor pressures; a more constricted trade market, thus reducing foreign-exchange earnings; and (except China as well) a commodity market collapse drastically curbing foreign-exchange earnings.

Dilma Rousseff's Brazil managed to destabilise the business community with too little liberalisation to fit into the unfolding neo-liberal order and with too many social demands to be able to easily do so in the immediate future. With a seriously imbalanced budget, spiralling inflation and unemployment (collectively: stagflation), and its sovereign-debt rating downgraded to junk status, Brazil's economy is only expected to shrink this year and the next. 

China's overdue market corrections have yet to materialise just when many of its export sectors have begun to lose their competitive edge, in turn stalling an economy ready to "take-off" into maturity but confronting countervailing sectoral rigidities and excessive intervention. 

India's ability to further liberalise its economy and plunge into critical infrastructure building projects have helped it stay above the fray, the fray being mostly political and accumulating in too many arenas within the country, even as giant strides have been made with its neighbours and Asian partners over trade and economic cooperation. Yet, a depreciating Rupee (since 2013) and once-robust trade markets might still be hit and hurt by the Chinese devaluation.

Russia's command economy was sputtering from as early as the Ukraine intervention to be able to rally and diversify when the oil-price collapse came. Income fell, to a large extent because oil-income also fell; food production declined, not that it is an importer, but sufficiently to add to the gathering economic gloom; taxes have increased to support an adventurist foreign policy, again; tourism has suffered; and western sanctions over the Ukranian intervention were only renewed this January. Like Brazil, a negative growth rate is expected for the immediate future.

South Africa, like many other African countries, suddenly found the commodities markets sink when big projects were about to be undertaken. This aggravated unemployment, rated over 25 per cent, and with meagre educational resources, corruption, and an inadequate domestic market, South Africa's strengths, as in the sophisticated finance market and infrastructure, have all been headed in the wrong direction.

Oil acted both independently as a factor, and peculiarly to some of those countries. Brazil and Russia helplessly watched their revenues shrink drastically, not just in 2015, but even with the 2014 slashes. Other large producers like Saudi Arabia, across the Middle East, Angola and Nigeria in Africa, and Venezuela in Latin America found the oil price collapse to be so detrimental that foreign exchange controls quickly dotted the landscape. As oil importers, China and India should have been spared any struggles, but other factors complicated China's slate, leaving India a brief, though not too efficiently utilised, respite. Most of all, the United States, as the world's largest oil importer and rapidly emergent shale oil producer, suddenly found shale production losing feasibility and the oil glut hurting so many of its other corporations.  

As foreign investors began retreating from troubled markets, creditors raised the repayment ante, battering local currencies amid U.S. dollar revaluation. As monetary controls accelerated, devaluations, the last resort, became a reality in the world's second-largest economy, China, in late 2015. While those were good signals for travellers to reap upon, terrorist actions and fears thwarted a major pick-up during the holiday season. This particularly throttled what looked like a recovery across West Europe: Ireland led the growth-rate with 3.5 per cent, meaning the largest economies, in rank order, Germany, Great Britain, France, and Italy, all of which grew by less than 2.0 per cent, except Britain, whose 2.2 per cent was not robust enough. West Europe must now face the consequences of the refugee influx: Germany depended upon them, but now is at the forefront of forceful right-wing opposition.  East European countries, sandwiched as they were between a sabre-rattling Russia with its sinking economy, and a west unable to climb out of its own quagmire, are expected to  perform better, though they have not been traditional export-markets of African, Asian, and Latin emerging countries.

If we factor in Japan's own stagnation (from stalled reforms in the Diet), stalled growth (less than 2 per cent), increasing military interests, and spat with China, then we really see the dominant commercial centres under enormous stress. Unless new markets open up to absorb pent-up investors and bottle-needed merchandise, lethargy more than adventure might better characterise the global economy.

This is where BRICS leadership is needed, on the one hand, to absorb the exports of other countries, particularly the United States, so that a more open and vibrant U.S. market, on the other hand, could consume the exports of all these other countries as resplendently as before. The longest U.S. economic growth during the entire 20th Century was in the 1990s precisely because of this kind of an exchange: it pulled Mexico out of its peso plight in 1994, gave Latin American countries a boom, and resurrected the suddenly sinking Southeast Asian countries after 1997.

The distorted 21st Century economy that culminated in the 2007-10 Great Recession hangs like a shadow over the 2016 global economy: corporate greed followed the 1990s openness, but since corporations took the brunt of public and state wrath for instigating the Great Recession (Lehman Brothers went bankrupt and was liquidated; Merrill Lynch and Morgan Stanley were sold at dirt-cheap prices, among others; but even federal agencies, like Freddie Mae and Fannie Mae also chipped in by relaxing payment standards, and contributing to the sub-prime fiasco), it seems the table has turned, with corporations now strangulating states (by refraining from investment and demanding pay-back prematurely), and indirectly, the public. The "lose-lose" outcome can be salvaged only by one side relenting, or by stepping outside the box and sketching a new landscape. There is too much of a gung-ho air with both sides for that to happen, and innovation is not in the cards. The result: from one distortion to another until something massive caves in.

Dr Imtiaz A Hussain is Professor, International Relations,

 formerly Universidad Iberoamericana, Mexico City.

inv198@hotmail.com

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Source: The Financial Express