Growth in emerging markets, such as the BRICS, slowed significantly in 2011 and 2012. Speculation over whether or not the U.S. would begin tapering its quantitative easing(QE) program earlier this year sent emerging marketsinto a tailspin. Although the Fed has decided to hold off on tapering, no overnight fix can repair the
damage caused by the scare.
Emerging markets grew like over-fertilized weeds when the U.S. began its quantitative easing (QE) program back in 2008. Billions of dollars poured in when investors started searching for new places to make gains while US interest rates were low, causing emerging economies to grow at an exponential rate. Emerging markets became the “it” place to go; however, growth of that magnitude is unsustainable and, like gravity, what goes up, must come down. Emerging economies riding the high of post-QE investment booms are now coming back down to earth, and the ride, to say the least, has been a turbulent one. And like the challenges posed by the global financial crisis in 2008, it looks like the global security industry will once again be put to the test.
A report prepared by the International Monetary Fund (IMF) for the G20 gathering in St. Petersburg, Russia, in Sep. of this year stated that growth in emerging economies is down 2.75 percent from 2010 levels. Internal factors have caused growth in emerging economies to slow, but added external factors like the conflict in Syria and eventual tapering of the US's QE program are dealing extra blows to emerging markets, leaving their economies black and blue.
BRICS Down But Not Out
For a while it seemed as if nothing could bring down the BRICS, but then the volatility of the global economy reared its ugly head and suddenly cracks began showing up in the BRICS wall.
In a joint effort to stem any financial crises, the BRICS have set up the Contingency Reserve Arrangement. The US$100 billion fund is to be formed using central bank reserves from each of the BRICS. All of the members will have access to the funds which can be tapped for financial need and to help member countries fund current account deficits. China will put up the lion's share with $41 billion, followed by Brazil, Russia, and India with $18 billion each, and South Africa with $5 billion.
Tough as BRICS: Russia and China
Of the BRICS, Russia and China have fared the best — Brazil, India, and South Africa have not been so lucky. This does not mean, however, that they have gone unscathed.
The Russian government reduced its full-year growth forecast down to 1.8 percent from 2.4 percent, as the economy struggles with weaker exports and slowing consumption rates. According to the Federal Statistics Service, the Russian economy expanded 1.2 percent in Q2, lower than the 2 percent expected by some economists. The government has also downgraded its 2014 growth outlook range to 2.8 to 3.2 percent, down from 3.7 percent.
Russia's ruble is down about 8.5 percent against the US dollar this year amidst investors pulling out of emerging markets. However, Anton Siluanov, Minister of Finance of the Russian Federation, assured that “the ruble is not weakening, it's fluctuating.”
As the world's second largest economy, behind the U.S., China experienced unparalleled investment growth in the wake of US stimulus money being injected into emerging economies. China became a global hotspot for investment. Double-digit growth, however, has turned into single digit growth and this year China's GDP growth has slowed to 7.5 percent in Q2 from last year. This marks the longest streak of under 8 percent expansion in two decades, putting the government at risk of missing its target of 7.5 percent growth for 2013.
Despite slowing growth and outflows of investment money, JP Morgan raised its estimate for China's Q3 growth to 7.6 percent from 7.4 and Q4 growth to 7.5 percent from 7 percent.
Impact on Security
Weakened economies and dim outlooks are usually a recipe for cutbacks in government spending — government spending, however, is usually what has the greatest impact on the security market in emerging countries. Mix in unpredictable situations such as the conflict in Syria and prospective tapering of the QE program and emerging economies are left to juggle even more uncertainty. Although the immediate future of emerging economies is unknown, security companies continue to expand in these countries. Recovery for these economies is likely to be an uphill battle in 2014; however, only time can tell whether or not emerging markets will be able to prove their resilience in the face of adversity.