The acronym “BRIC” became synonymous in the past decade with very strong economic fundamentals in a handful of developing countries. India fit this description well as the country consistently registered GDP growth rates in excess of 8 percent per annum with relatively benign inflation. However, the country’s economic performance has deteriorated in recent years. Real GDP growth has slowed to only 5 percent, and CPI inflation remains stubbornly elevated around 10 percent. The country’s current account deficit has widened significantly.
This deterioration in India’s economic performance appears to be related to the declines that have occurred in the country’s national savings and investment rates in recent years. Although cyclical factors may allow some recovery in these ratios over the next few years, the Indian government may need to do more in terms of infrastructure spending and other economic reforms to bring about a recovery in the national savings and investment rates to the levels that were achieved during the past decade. Otherwise, India may lose its “BRIC” status.
India’s Macro Fundamentals Have Deteriorated in Recent Years
Over the years, Jim O’Neill, former Chairman of GSAM, rose to fame for pegging the BRIC acronym (no such luck for the guy who came up with the far more applicable and accurate PIIGS, orSTUPIDS, monikers, but that’s neither here nor there). O’Neill was correct in suggesting, about a decade ago, that the rise of the middle class in these countries and their purchasing power would prove to be a major driving force in the world economy.
O’Neill was wrong in his conclusion as to what the ultimate driver of said purchasing power would be: as it has become all too clear with the entire world drowning in debt (and recently China), it was simply debt, which moved from the funding developed world consumption to handing out credit cards to consumers in the developing world.
He may only have five weeks left as Chairman of Goldman Sachs Asset Management but Jim O’Neill is not changing his tune. We were both speaking at a conference Friday – he got the glamour of the BRIC 4 and I got the depressing Euro 17. But in Jim’s opinion, ignore the headlines – forget the Fiscal Cliff and the Eurozone crisis is extraneous, it’s all about the developing world. To put it into context economically, China creates another Cyprus every week. It’s still all about the acronym that made him globally famous and not just in finance.
In 2013, O’Neill’s firm is forecasting Brazil to grow at 4.0%, China at 7.9%, India at 7% and Russia at 4%. So in total the four BRICs are to power along at 6.9% and what he describes as “growth markets” at 6.4%. Compare this to the 1.5% forecast in advanced economies. In total, thanks to the fast-growing world, global GDP is to expand 3.7% in 2013 and 4.1% in 2014. For any global investor, there is no crisis – there is plenty of growth. It’s just not in the old world.
Jim O’Neill, chairman of Goldman Sachs’ struggling asset management arm, is to retire from the investment bank where he became famous for forecasting the growing power of emerging market economies.
In 2001 Mr O’Neill coined the acronym Brics to represent the potential of Brazil, Russia, India and China while head of economic research for the bank, and his own rise mirrored that of the countries he championed.
However, people familiar with Mr O’Neill’s decision said that his departure may have been motivated in part by frustrations over the status of Goldman Sachs Asset Management within the bank.
A member of Goldman’s influential European management committee from 2006, the post of GSAM chairman was created specifically for Mr O’Neill in September 2010.
He was charged with expanding the business and rebuilding its flagging reputation on Wall Street, and had “strong ideas” about what should be done to revive the business, according to a person familiar with the group.
India’s GDP may exceed all expectations next year as there are signs that policymakers might spring up positive surprises, Goldman Sachs has said.
“India in many ways remains the most complex of the four (Bric nations), with its demographics giving it the best potential GDP growth rate, but its inability to introduce effective policy change is a persistent source of disappointment” leading international fund house Goldman Sachs asset management chairman Jim O’Neill said.
“This being said, there are lots of policy changes being discussed and the Indian stock market seems to be quite excited about something.
Goldman Sachs Asset Management chair Jim O’Neill tends to look on the cheery side of things, but in his latest weekly letter (.pdf) he’s more bearish than we recall. Just when he thought the economy was turning a corner, he says, there’s been a spurt of bad data, some of it Sandy-related, and some of it Fiscal Cliff-related (a topic on which he sees no progress).
His most interesting comments concern Europe. He notes that it won’t be too long before Germany’s export exposure to the rest of the Eurozone is rather small (compared to its BRICs export exposure) and so therefore it won’t be too long before Germany just doesn’t have any economic rationale in saving it.
The bank has also banned Mr Pandit from working for 13 financial firms after he announced his resignation last month.
In a regulatory filing, Citi said Mr Pandit would be paid a bonus of $6.7m for 2012 as well as an $8.8m award for last year.
The payments will be in cash, with 40pc paid immediately and the remainder vesting every year between 2014 and 2017.
Chief operating officer John Havens will receive $6.8m as a bonus for 2012, the bank revealed.
“Vikram and John made significant contributions to Citi during their five years of service,” Mike O’Neill, chairman, said in a statement. “Vikram steered Citi through the financial crisis, realigned its strategy, bolstered its risk management processes and returned it to profitability. John’s focus on our institutional businesses increased our capabilities and helped steer our clients through volatile times.”
The report explains how Pandit was completely blindsided on October 15, when he walked into O’Neill’s office, on the same day he reported strong earnings.
…Mr. Pandit, the chief executive of Citigroup, was told three news releases were ready. One stated that Mr. Pandit had resigned, effective immediately. Another that he would resign, effective at the end of the year. The third release stated Mr. Pandit had been fired without cause. The choice was his.
- CITIGROUP NAMES MICHAEL CORBAT AS CEO VIKRAM PANDIT STEPS DOWN
- CITIGROUP PRESIDENT-COO JOHN P. HAVENS ALSO RESIGNS
- CITIGROUP NAMES MICHAEL CORBAT AS CEO VIKRAM PANDIT STEPS DOWN
- CITIGROUP BOARD UNANIMOUSLY ELECTED CORBAT TO CEO
- CITIGROUP SAYS HAVENS HAD BEEN PLANNING TO RETIRE AT YEAR END
And so the rat procession out of the Titanic begins.
The Board of Directors of Citigroup today announced that Vikram Pandit has stepped down as the Company’s Chief Executive Officer and as a member of the Board, effective immediately. The Board also announced it has unanimously elected Michael Corbat CEO and a director of the Board. Mr. Corbat previously served as Citigroup’s CEO of Europe, Middle East and Africa.
Mr. Pandit said: “Thanks to the dedication and sacrifice of people across Citigroup, we have emerged from the financial crisis as a strong institution.
Citigroup is well-positioned for continued profitability and growth, having refocused the franchise on the basics of banking. Given the progress we have made in the last few years, I have concluded that now is the right time for someone else to take the helm at Citigroup. I could not be leaving the Company in better hands. Mike is the right person to tackle the difficult challenges ahead, with a 29-year record of achievement and leadership at this Company. I will truly miss the wonderful people throughout this organization. But I know that together with Mike they will continue to build on the progress we have made.”