Bric

BRICs Monthly
Issue No: 10/03 May 20, 2010
Goldman Sachs Global Economics, Commodities and Strategy Research at https://360.gs.com

Is this the ‘BRICs Decade’?
Dominic Wilson dominic.wilson@gs.com +1 212 902 5924 Alex L. Kelston alex.kelston@gs.com +1 212 855 0684 Swarnali Ahmed swarnali.ahmed@gs.com +44 (0)20 7051 4009

The last decade saw the BRICs make their mark on the global economiclandscape. Over the past 10 years they have contributed over a third of world GDP growth and grown from one-sixth of the world economy to almost a quarter (in PPP terms). Looking forward to the coming decade, we expect this trend to continue and become even more pronounced. The last decade saw the ‘arrival’ of the BRICs story. Here, we take a look at the next chapter—at how the BRICs and theirrelationships with the rest of the world will change in their second decade. We expect many of the trends we have already seen to continue and become even more pronounced. Our baseline projections envisage the BRICs, as an aggregate, overtaking the US by 2018. In terms of size, Brazil’s economy will be larger than Italy’s by 2020; India and Russia will individually be larger than Spain, Canada orItaly. In the coming decade, the more striking story will be the rise of the new BRICs middle class. In the last decade alone, the number of people with incomes greater than $6,000 and less than $30,000 has grown by hundreds of millions, and this number is set to rise even further in the next 10 years. These trends imply an acceleration in demand potential that will affect the types of products theBRICs import—the import share of low value added goods is likely to fall and imports of high value added goods, such as cars, office equipment and technology, will rise. In the past decade, BRIC equity markets outperformed significantly because the strong growth of these economies surprised many and the BRICs themselves came into focus. At the same time, valuations were low relative to many majormarkets in 2000. Now that the BRICs story is better known, expectations are higher and the valuation gap is much smaller, the same degree of outperformance seems much less likely, even if the BRICs deliver solid returns.

% global growth

BRICs Will Contribute Twice As Much To Global Growth As The G3 In The Next Decade
2001-2010 2011-2020

50 45 40 35 30 25 20 15 10 5 0 China Russia IndiaBrazil BRICs G3
Source: GS Global ECS Research

Millions of people Millions in the BRICs to Enter Middle Class

Income Bracket by 2020, Far Surpassing the G7
1800 1600 1400 1200 1000 800 600 400 200 0 Brazil Russia India China BRICs G7
People with incomes greater than $6,000* 2000 2010 2020

*We generally consider Middle Class as those with incomes >$6,000 and $6,000 - i.e. both the middleand upper class. Source: Goldman Sachs

Important disclosures appear at the back of this document

Goldman Sachs Global Economics, Commodities and Strategy Research
2010 US$trn

BRICs Monthly

BRICs' GDP Will Continue To Gain On The G7

The ‘BRICs’ Decade’—Behind Us or Ahead?
 Since we coined the acronym in 2001, BRICs has become

40 35 30 25 20 15 10 5 0 G7 BRIC N-11 Other OtherDeveloped Emerging Markets Markets
2000 2010 2020

well-known worldwide, and investors, politicians and many others have shifted their focus to these countries. As we look back on the last decade, it’s clear that the BRICs have already begun to play a more significant role in the global economy and on the world political stage. The BRICs contributed 36.3% of world GDP growth in PPP terms (or27.8% in USD) during the first decade of the century. They have also steadily increased their share of global output. Currently, they make up about a quarter of the global economy (in PPP).
 We expect many of the trends we have already seen to

Source: GS Global ECS Research % global growth

BRICs Will Contribute Twice As Much To Global Growth As The G3 In The Next Decade
2001-2010...