Dont drop all the hot BRICs

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Dont drop all the hot BRICs!

• Presentation to Channel Islands Stock Exchange
• September 11th, 2009

Maya Bhandari, Lombard Street Research
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Save and lend countries, current surpluses, bn
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Borrow and spend countries, current deficits,
bn
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US house prices, various measures
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US incremental debt/GDP ratio, 5-year ma
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Brazils improved trend
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Indian potential risesbut so does the output gap
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CEE real GDP improvement before collapse
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Components of GDP, 2007 averages
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Brazil a less imbalanced economy
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Brazils chief weakness is commodities

• Four main channels of transmission
• Exports, knock-on to production/ corporate sector
• Resource sector capex
• Equity market 40 commodity-exposure
• Real and terms of trade
• Outweighed to a large extent by
• tiny share in GDP
• scope for massive policy ease, both monetary and
  fiscal
• 2009 dip to be followed by recovery in 2010
• Brazil looks better than India

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India crashes much less
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India has an inflation problem
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Indian monetary aggregates, yy change
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Indias ballooning fiscal deficitstates plus
centre, of GDP
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Central and Eastern Europe, exports, of GDP
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Emerging markets short term debt, of GDP
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Housing forex loans, of total
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Emerging markets CEE-4 weakest, Brazil strongest

• For the CEE-4 a violent 2009-10 downswing
• Heavily reliant on external financing and
  external demand for growth, the worst of both
  worlds
• Added heavy forex borrowing constrained policy
• Deep contractions this year, Hungary/fixed-exchang
  e rate Baltics weakest, Poland strongest medium
  term
• Brazil strongest
• Good structural condition, positive cyclical
  momentum
• Only modest reliance on exports for growth,
  inventories sharply pared back
• Massive scope to kick-start the economy,
  especially in emerging market context