Schroders downgrades growth forecast for three Brics


Schroders’ economics team has cut its 2013 growth outlook for the Chinese, Brazilian and Russian economies in light of recent data showing some weakness in activity.

Chief economist Keith Wade and his team now expects the Chinese economy to expand by 7.8 per cent in 2013, down from its previous estimate of 8.2 per cent.

Wade says: “First quarter GDP surprised the market on the downside, coming in at 7.7 per cent year-on-year as opposed to an expected 8 per cent, with much of this weakness coming in the March data.

“The recently received data from April reveals a mixed picture, with improving exports but weakness in industrial production and fixed investment. With two extra working days in April 2013 than last year, the underlying numbers are worse than the headline figures suggest.”

Schroders’ economics team has also lowered its growth prediction for Brazil, from 3.1 per cent to 2.8 per cent.

“The recent cyclical data out of Brazil has provided a mixed picture, with signs of improvement in industrial production, helped by capital goods, but less encouraging signals from the retail sector, which continues to show signs of weakness,” Wade says.

“Moreover, survey data from the manufacturing PMI has rolled over since the beginning of the year, having risen strongly at the tail-end of 2012, suggesting that further gains in industrial activity may be limited in the near term.”

The economist adds that Brazil’s internal drivers of growth are likely to be hampered by the interest rate tightening cycle the country has recently entered. The central bank recently lifted interest rates from 7.25 per cent to 8 per cent and Wade expects rates to reach 8.5 per cent by the end of the year.

In addition, the team has cut its 2013 Russian growth forecast from 3 per cent to 2.7 per cent, despite the fact that the economy’s first-quarter GDP number beat expectations. However, Wade describes the 1.6 per cent year-on-year expansion as “anaemic”.

“It is clear that growth remains disappointing,” Wade says.

“This is little surprise, given how sensitive Russian growth is both to the price of energy and exports to Europe. With the former having come off strongly in the early months of this year, alongside other commodities, and the latter still mired with a bleak macro outlook, Russian growth is likely to remain weak.”

India is the only one of the four Bric economies to see an upgrade in the economics team’s forecast, with anticipated GDP growth lifted from 6 per cent to 6.1 per cent. Wade says the upgrade owes to improved inflation dynamics and commodity price movements.