Interview: Alessandro Texeira
There are signs of emerging markets decoupling from developed economies. Will economies such as Brazil’s be more immune to external shocks?
ALESSANDRO TEXEIRA: I would not call it “decoupling” as such. The crisis has increased the necessity and speed at which these economies are becoming more autonomous, but it is not a consequence of the crisis. We are seeing a shift in economic power and production. In 2012, for instance, we expect that 51% of global GDP will be created in emerging markets.
I also think the trends we are seeing are due to the transformative nature of developing economies. Advanced economies usually generate 10-15% of revenue through agriculture and another 10-15% through manufacturing, with the rest generated by services. In developing economies, it is a very different picture, with manufacturing generating around 25%. With demand for manufactured goods still rising globally, the share of manufacturing in developing economies is likewise growing. But the really interesting point is that agriculture and the service industries are both increasing as well.
Given these three engines of growth in emerging markets it is normal that the trade between emerging economies is on the rise. Increasing economic relations between Brazil and China are a good example of this. A decade ago China was Brazil’s sixth- or seventh-largest trade partner. Now it is number one.
Another factor driving this process is integrative production. Many of the industries in China are moving to Vietnam, Laos and Cambodia. This is not just due to a cost-saving factor, but also because of integrative production capacity within the region.
The same is also true in Latin America. We have Brazilian companies moving to Colombia, Peru and Argentina, further integrating production in the region. This wider focus on production has led to an increase in regional and global trade.
A good example of such symbiosis in Latin America is the automotive industry in Argentina and Brazil. For example, Argentina would not usually produce more than 200,000 cars per year, but due to the growing market in Brazil the current forecast is between 800,000 and 1m cars per annum. Brazil produces parts for export to Argentina and then Argentina produces cars and sells them to Brazil.
To what extent did fiscal and monetary discipline account for relative economic resilience of many emerging markets during the last downturn?
TEXEIRA: We observe three factors here. First, the macroeconomic instruments are much more solid internal monetary and fiscal instruments. Another important cushion is the strength of the financial sector balance sheets and low leverage. Where that is not the case – for instance in China – the central government has built a war chest of foreign reserves. Finally, the current situation differs from previous crises in that growth in China, India, Brazil and South Africa is domestically driven. Many people make the mistake of thinking that the slowdown in China’s growth was because of the crisis. That is completely untrue. The central government of China decided to slow down domestic growth and it has nothing to do with the crisis. Due to China’s internal decision to slow down, Brazil was able to increase its level of exports by almost 30% last year.
What are the prospects for non-dollar-denominated trade? Do you think the US dollar will be replaced by another global reserve currency?
TEXEIRA: I don’t think so. In the past people thought the US will lose the status and the euro will become the new trade currency. In Asia and Latin America, local currency can be one of the options for inter-regional trade. But to achieve that at all, we would need to have strong central banks that are all in agreement with each other. They need to be more homogenous, which is why I do not think the US dollar will be replaced as the global trade currency.