Hamish McRae: The Brics and the developed economies are all rebalancing. Over the next year the latter will probably come out on top

Economic View: The gap has narrowed between emerging markets and the US, UK, Japan and eurozone

The great rebalancing act continues – rebalancing, that is, of growth between the G7 and the Brics. The past few days have seen a series of news stories in both the emerging and developed worlds that highlight the shift. The questions now concern how far this rebalancing might go and the consequences of that.

To start with the Brics, two of them look like heading into recession this year. Russia was poised on the brink of recession even ahead of the events in Crimea. Now it looks pretty certain to show negative growth for at least a couple of quarters. The only thing that might change this being a surge in oil and gas prices, for energy is such a large part of the Russian economy that a rise in the price would automatically increase the size of the country's GDP.

Receiving much less attention has been the slowdown in Brazil. The current data is not too bad, for there was some growth in the final quarter of last year after a dip in the autumn. Market forecasts are for growth of 1.5 to 1.9 per cent this year. But the past few days have seen new concerns about the combination of slow growth and high inflation, stagflation. Brazil's credit rating was downgraded by Standard & Poor's this week, citing the poor fiscal outlook and deteriorating growth. It is hard to see quite how the country will escape from this and it is quite possible that the economy will dip into recession later this year or early next. On a longer view Brazil has great growth prospects, unlike Russia, but in the short term it faces politically difficult reforms.

The other two Brics, China and India, face different issues. In the case of China it is how to maintain growth at around 7 per cent, somewhat slower than in recent years, and not let it dip further. In India it is how the new government, to be elected in a few weeks' time, can push up performance after a disappointing year. The basic point here, though, is that while both of these countries are growing solidly, the burst of optimism of three years ago has been replaced by a more measured attitude.

So there has been a reassessment. Taken as a whole, they and the rest of the emerging world will grow more swiftly than the developed world. There is no question about that. But the gap has narrowed.

It has been narrowed by a stronger performance in the developed world too. The graph shows the consensus forecasts for this year and next for the US, UK, Japan and the eurozone. The obvious point here is that a year ago only the US was seeing reasonable growth, whereas for the next two years all three regions are expected to continue to grow, albeit in the case of Japan and the eurozone quite slowly.

In structural terms I don't think there has been much of a change. But in cyclical terms there can be no doubt that the cycle is favouring the developed world, with even the laggards being pulled along by the rest. There is only one country in the entire developed world that I can find that is not expected to grow this year, and that is Greece. Even Greece is expected to grow in 2015. But the flip side of this is that the Asia-Pacific region is expected to grow by 4.6 per cent this year, faster than any country in the developed world.

This distinction between the long-term structural balance in the world and the short-term cyclical forces is absolutely crucial to understanding what is going on. The first favours the Brics; the second the G7. So what should we look for next?

This reassessment, rebalancing, call it what you will, has some way to run. The drift of the news through this year and next will favour the developed world as the cyclical upswing strengthens. The parts of the developed world that are expanding fastest will experience higher interest rates first. You can have a debate about the timing of the first increase in UK interest rates – will it be this coming November or will we have to wait until next year? – but no one doubts that a rise is now firmly on the way. We all know this: that is why there has been a surge in homeowners fixing their mortgages.

At the other end of the scale, the eurozone may move in the other direction. There has been a lot of speculation in the past few days that some form of QE will be adopted in Europe, particularly if inflation dips further and certainly if it moves negative. There is not much point in adding to this, except to observe that if Europe faces deflation it is common sense for the European Central Bank to use unconventional methods to try to nudge prices upwards. That is its mandate. My guess is that further measures are now an odds-on bet, but we will see.

The US will tighten, of course. The tapering down of the monthly purchases of Treasury securities will continue and those purchases will cease in the autumn. The focus will then switch to the pace at which its interest rates will climb. While at the moment there is a lot of understandable attention paid to what its new chairman, Janet Yellen, says, the key determinant will be the performance of the US economy. The latest numbers, for example for consumer confidence and housing starts, have been pretty positive.

Numbers matter more than words. If the numbers surprise on the upside, as they are doing in the US and UK, and from a rather lower base also in Europe, then the "developed world good" mood will continue. If, on balance, the numbers from the Brics disappoint, the "emerging world bad" mood will also continue. But both moods exaggerate what is actually happening. Welcome the recovery in the developed world, but note the structural shift towards the emerging world runs on for a long while yet.

Voices
The Sumatran tiger, endemic to the Indonesian island of Sumatra, is an endangered species
voicesJonathon Porritt: The wild tiger population is thought to have dropped by 97 per cent since 1900
News
Gardai wait for the naked man, who had gone for a skinny dip in Belfast Lough
newsTwo skinny dippers threatened with inclusion on sex offenders’ register as naturists criminalised
Sport
Van Gaal said that his challenge in taking over Bobby Robson's Barcelona team in 1993 has been easier than the task of resurrecting the current United side
football
News
news
PROMOTED VIDEO
Arts and Entertainment
Beast would strip to his underpants and take to the stage with a slogan scrawled on his bare chest whilst fans shouted “you fat bastard” at him
musicIndie music promoter was was a feature at Carter gigs
Arts and Entertainment
Story line: Susanoo slays the Yamata no Orochi serpent in the Japanese version of a myth dating back 40,000 years
arts + entsApplying the theory of evolution to the world's many mythologies
News
Performers dressed as Tunnocks chocolate teacakes, a renowned Scottish confectionary, perform during the opening ceremony of the 2014 Commonwealth Games at Celtic Park in Glasgow on July 23, 2014.
news
Life and Style
Popular plonk: Lambrusco is selling strong
Food + drinkNaff Seventies corner-shop staple is this year's Aperol Spritz
Life and Style
Shake down: Michelle and Barack Obama bump knuckles before an election night rally in Minnesota in 2008, the 'Washington Post' called it 'the fist bump heard round the world'
newsThe pound, a.k.a. the dap, greatly improves hygiene
Arts and Entertainment
La Roux
music
Arts and Entertainment
Graham Fellows as John Shuttleworth
comedySean O'Grady joins Graham Fellows down his local Spar
News
people
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
Ross Burden pictured in 2002
people
News
Elisabeth Murdoch: The 44-year-old said she felt a responsibility to 'stand up and be counted’'
media... says Rupert Murdoch
Arts and Entertainment
tv
Extras
indybest
Sport
Arsenal signing Calum Chambers
sportGunners complete £16m transfer of Southampton youngster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Entry Level Fund Accountant (Edinburgh)

£17 - £20 per hour: Cameron Kennedy Recruitment: My client, one of the worlds ...

SQL DBA/Developer

£600 per day: Harrington Starr: SQL DBA/Developer
 SQL, C#, VBA, SQL Server, ...

Risk Analyst - VBA/EXCEL

£300 - £600 per day: Harrington Starr: Risk Analyst Access, EXCEL, VBA, RISK, ...

Market Access Analyst (FIX 5.0, Equities, Derivatives)

Negotiable: Harrington Starr: Market Access Analyst (FIX On-boarding, FIX 5.0,...

Day In a Page

The children were playing in the street with toy guns. The air strikes were tragically real

The air strikes were tragically real

The children were playing in the street with toy guns
Boozy, ignorant, intolerant, but very polite – The British, as others see us

Britain as others see us

Boozy, ignorant, intolerant, but very polite
Countries that don’t survey their tigers risk losing them altogether

Countries that don’t survey their tigers risk losing them

Jonathon Porritt sounds the alarm
How did our legends really begin?

How did our legends really begin?

Applying the theory of evolution to the world's many mythologies
Watch out: Lambrusco is back on the menu

Lambrusco is back on the menu

Naff Seventies corner-shop staple is this year's Aperol Spritz
A new Russian revolution: Cracks start to appear in Putin’s Kremlin power bloc

A new Russian revolution

Cracks start to appear in Putin’s Kremlin power bloc
Eugene de Kock: Apartheid’s sadistic killer that his country cannot forgive

Apartheid’s sadistic killer that his country cannot forgive

The debate rages in South Africa over whether Eugene de Kock should ever be released from jail
Standing my ground: If sitting is bad for your health, what happens when you stay on your feet for a whole month?

Standing my ground

If sitting is bad for your health, what happens when you stay on your feet for a whole month?
Commonwealth Games 2014: Dai Greene prays for chance to rebuild after injury agony

Greene prays for chance to rebuild after injury agony

Welsh hurdler was World, European and Commonwealth champion, but then the injuries crept in
Israel-Gaza conflict: Secret report helps Israelis to hide facts

Patrick Cockburn: Secret report helps Israel to hide facts

The slickness of Israel's spokesmen is rooted in directions set down by pollster Frank Luntz
The man who dared to go on holiday

The man who dared to go on holiday

New York's mayor has taken a vacation - in a nation that has still to enforce paid leave, it caused quite a stir, reports Rupert Cornwell
Best comedians: How the professionals go about their funny business, from Sarah Millican to Marcus Brigstocke

Best comedians: How the professionals go about their funny business

For all those wanting to know how stand-ups keep standing, here are some of the best moments
The Guest List 2014: Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks

The Guest List 2014

Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks
Jokes on Hollywood: 'With comedy film audiences shrinking, it’s time to move on'

Jokes on Hollywood

With comedy film audiences shrinking, it’s time to move on