The concept of BRICs, a grouping of Brazil, Russia, India and China, gained widespread notoriety with the 2003 publication of a Goldman Sachs study, say the auto industry analysts CSM Worldwide. The GS study anticipates that the size of the BRICs economies will surpass that of the traditional G-6 economies (France, Germany, Italy, Japan, UK and US) within 40 years.
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Much of the economic growth, at least in the shorter term, will derive from China. Of the BRICs, China is the largest economy (at $1.5 trillion in 2003) and the fastest growing (up 9.5% in 2004). We expect China to grow from 4.2% in 2004 to 5.5% of the world economy in 2011. This accounts for 73% of the expected growth in the BRICs over the time period. The opening of the Chinese economy has created a rush of development, which is expected to continue as further liberalizations related to WTO membership and the shaping of the financial sector create further opportunities.
China continues to outperform other developing nations, despite the government’s efforts to forestall inflation by slowing economic growth. Vehicle production was asymmetrically affected by efforts to slow the economy; production decelerated from a 41.8% gain in 2003 to a 10.8% gain in 2004. Going forward, CSM does not anticipate a return to the growth rates seen in 2003. However, vehicle production will benefit from the establishment of auto loans, more effective pricing strategies and new trade agreements that will foster expansion of exports.
The growth trajectory for India’s economy is not as steep as China’s. The demographic profile for India, however, could be more beneficial for growth in the longer term relative to its BRICs counterparts. India has a significantly younger population, which will provide a greater labor force in the coming decades. Through 2011, India’s population is anticipated to grow by 105 million, easily dwarfing the 58 million anticipated for China and the 13 million anticipated for Brazil. Over the time period, Russia’s population is expected to decline by nearly 4 million.
As India’s population continues to grow, wages are expected to increase, allowing more consumers the opportunity to purchase vehicles. Between 2002 and 2004, however, vehicle production nearly doubled to reach 1.24 million units, buoyed in part by a period of abnormally high economic activity in 2003. Over the next six years, production will continue to grow, though not as robustly as the previous two years. Through 2011, production is expected to hit 1.96 million units, up 58% from current levels.
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By GlobalDataBrazil’s economy will not have as significant an effect on the global scene but will remain the dominant country within South America. By 2011, its population will be just under 200 million. Brazil still needs to address large government borrowing that crowds out investment in the private sector. Without this investment, Brazil will not grow fast enough to develop a larger middle class. Continued efforts at reform are raising the possibility of a more aggressive growth profile for vehicle sales. Tax reform for Brazil’s auto industry is being discussed that would allow vehicle prices to decline stimulating short-term demand. Brazil may also see a shift in consumer purchases; with the proposed tax reform, sales of up market vehicles such as SUVs and C-segment offerings would become more affordable for Brazilian buyers.
Russia is currently the wealthiest of the BRICs with an average GDP per capita of over $3 thousand (see chart). However, recent moves by the Russian government have caused international investors to reevaluate the market. As a result, long-term growth estimates have been revised down. Growth prospects could improve with a friendlier attitude toward business, particularly given the well-educated labor force and the abundance of natural resources.
The growing markets of the BRICs will exert a widening influence on global vehicle production. By 2006, we see China surpassing Germany to be the third largest producer of light vehicles. By 2011, we anticipate Brazil leapfrogging Canada to achieve the number eight spot and India surpassing the UK to sit at number 11. In terms of production, Russia’s high-growth years are likely a decade or more off. Combined, we see the BRICs comprising 20% of total light vehicle build in 2011.
By Greg Mount and Lauren Lack of CSM Worldwide (http://www.csmauto.com)
Greg Mount can be reached at gregmount@csmauto.com
Lauren Lacks can be reached at laurenlacks@csmauto.com
