NEW YORK: The developing countries of Brazil, Russia, India and China recovered quickly from the financial crisis five years ago. Their spending helped keep a global recession from becoming a global depression.
Now they’re stumbling.
Indians are buying fewer cars for the first time in a decade. Chinese are struggling as economic growth slows to a two-decade low. Even big-spending Brazilians, who like to buy everything from shoes to dental work on credit, are turning thrifty — and angry. Hundreds of thousands took to the streets in June to protest rising prices and shoddy public services.
The timing is unfortunate. The economies of the United States, Europe and Japan have gained some momentum in recent months. It seemed that both developed and developing countries would finally be strengthening together as they did before the crisis. Now, hopes for a healthier worldwide economy have been dashed.
The reasons for the slowdown in the Bric, as the four biggest developing countries are known, are myriad, from a pullback in bank lending in China to crumbling infrastructure and rampant corruption in India. One constant: The cost of living is rising fast, sapping spending power and the spirits of even those who’ve done well since the crisis.
Wang Yonghui, a hotel worker in Shijiazhuang, China, bought an apartment in 2006 that has almost doubled in value. But the price of nearly everything else has risen, too, outstripping his and his wife’s monthly income of 8,000 yuan ($1,300).
“So our net worth goes up, but our savings goes down,” says Wang, 51, adding that he no longer has the appetite, or the cash, to dabble in stocks as he used to.
In Russia, Daria Ivashkevich, 42 and a mother of two, paid off a loan for her Moscow apartment a few years ago, and no longer borrows to buy smartphones, computers and other items. Still, she’s had to cut back on food and travel to make ends meet. “Our income hasn’t gone down but because of inflation we have less money to spend,” she says. Consumer prices in Russia have risen an average nine percent a year since the financial crisis, according to Haver Analytics, a data provider.
When the crisis struck in the fall of 2008, exports from developing countries to developed ones plunged, as did stock markets from Beijing to Moscow. But the developing countries snapped back, thanks to a mix of massive government stimulus programs, a flood of bank loans to businesses and consumers and a rebound in prices for commodities, a big source of exports for some of the countries.
Now, the Chinese government is pulling back from its loose-credit policy to rein in excessive borrowing, which is slowing growth. Falling prices for commodities have hobbled Brazil and Russia. Indian consumers have slowed spending because of high inflation. A jump in US interest rates since May is hurting, too. Investors attracted to those higher rates are pulling money out of developing countries, slamming their economies.
The tougher times are forcing many people to retrench.
“I’ve started to ask myself, ‘Do I really need this?’” says Antonio Guedes, 33, a clothing designer in Rio de Janeiro. “... I think people of my generation are going to have a much more uncertain financial life than our parents’ generation.”
AP
