After a decade of infatuation, investors have suddenly turned their backs on emerging markets. In the Bric countries – Brazil, Russia, India and China – growth rates have quickly fallen and current account balances have deteriorated. The surprise is not that the romance is over but that it could have lasted for so long.
From 2000 to 2008 the world went through one of the greatest commodity and credit booms of all times. Genesis warns that after seven years of plenty, “seven years of famine will come . . . and the famine will ravage the land”. Perhaps the combined commodity and credit cycle, from which the Bric countries have benefited more than their due, is divinely appointed.
The boom was prolonged for half a decade by quantitative easing in mature economies, flooding them with cheap financing. During their years of plenty, the Brics did not have to make hard choices. Today, their entrenched elites seem neither inclined to nor able to do so. Their lives have been too good.