Goldman Sachs forecasts the BRIC economies with concerns on aging demographics

Blomoberg – Aging and shrinking labor pools are also poised to curb expansion across the other so-called BRIC nations that contributed almost half of global growth in the past decade. With fewer youths keeping factories going and more pensioners to support in those markets, the world economy is set to slow, Goldman Sachs says.

The number of people older than 65 in Brazil, Russia, India and China will rise 46 percent to 295 million by 2020 and to 412 million by 2030, according to United Nations projections. The pool of 15 to 24-year-olds, the mainstay for factories like Liu’s that drove China’s boom for three decades, will fall by 61 million by 2030, about the population of Italy.

As the BRICs slow down, global growth probably will peak at about 4.3 percent this decade and fall to 3.9 percent in the 2020s, according a Dec. 7 report by Goldman analysts. That’s prompting fund managers including Mark Mobius to invest in so- called frontier markets such as Nigeria, Vietnam and Argentina, where average annual growth is set to rise to 5.1 percent this decade, from about 4.3 percent in the previous 10 years.

Goldman Sachs Asset Management Chairman Jim O’Neill, who coined the BRICs acronym a decade ago, said other emerging economies may now be better investments — especially Indonesia, Turkey, Egypt and Mexico.

BRIC Country average annual GDP growth by decade per Goldman
2000-2009   7.9% 
2010-2019   6.9%
2020-2029   5.3%

The demographic volte-face has prompted calls for China to end its one-child policy, which exacerbated the drop in workers since its implementation in 1979; and has forced legislation in Brazil to control the cost of public-service pensions. In Russia, a shortage of qualified middle-aged workers is being blamed for a crisis in its space program after failed exploration and satellite launches.

In India, where the working-age population is projected to rise more than a quarter by 2030 to 972 million, illiteracy among more than one-third of workers is preventing the nation from capitalizing on its demographic fortune.

The positive contribution that came from an expanding workforce in China will turn negative in 2013, wiping at least half a percentage point off the potential annual growth rate, according to Wang Feng, a director of the Brookings-Tsinghua Center for Public Policy in Beijing.

India may not emulate China’s industrial development that transformed China into the world’s second biggest economy. Fewer than half of Indians in their 20s completed secondary education and 37 percent of adults are illiterate

GSAM is predicting global GDP growth of 3.4% for 2012, slightly below economists’ expectations of 3.7% growth for this year and 4.1% for 2013.

O’Neill also said recession is likely in the eurozone, forecasting a 0.4% contraction for this year against a widely expected 0.4% figure for growth. The investor’s forecast for the US is more optimistic than consensus at 2.2% growth, followed by 2.5% in 2013.

“Contrary to popular belief, we think the transmission mechanism of the European crisis to the US economy will remain relatively limited, given our base case that the euro area will not break up,” he said.

Meanwhile, GSAM expects to see a soft landing in China, with 8.2% GDP growth for 2012, then 8% in 2013.

O’Neill said: “Even though China is likely to grow more slowly, it is far from obvious to me that this is anything to worry about. “On the contrary, it may be really bullish, if it is accompanied by a more balanced set of growth drivers where personal consumption plays a bigger role.

“It also remains clear to me that many Chinese policy initiatives lie ahead, both in terms of macroeconomic policy and financial markets planning.”

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