BRICS Up Against The Wall

As the Turkish Lira sets slowly in the west ...

Well, not so slowly.  And investor sentiment turns on a sixpence (strange - they always know these things can happen ...)  - I am aware of one big private equity power plant deal that has foundered because of this very recent currency volatility: and the Turks need power plants - lots of them.  These are the kind of crises-in-confidence that spiral downhill quickly.

Ambrose in the DTel paints an ugly picture:

World risks deflationary shock as BRICS puncture credit bubbles As matters stand, the next recession will push the Western economic system over the edge ... Eurostat data show that Italy, Spain, Holland, Portugal, Greece, Estonia, Slovenia, Slovakia, Latvia, as well as euro-pegged Denmark, Hungary, Bulgaria and Lithuania have all been in outright deflation since May, once tax rises are stripped out. Underlying prices have been dropping in Poland and the Czech Republic since July, and France since August.  

Wow:  here we go again ?  One could imagine quite a flight of capital (to the extent people can get it out of places like China and Russia in times of crisis) and we all know where that ends up.  UK house price bubble, anyone ?

And a holiday in wonderful Istanbul ?  By-passing Taksim square, perhaps.  

ND

Brittle BRICs - Russia

Mother Russia. Winner of World War 2 and sometime world superpower.

Russia was named as one of the BRIC's due to its potential, more than its delivery of a great economy. After the 1990 revolution, the Communist superpower was down, but given it s vast lands and population, it was surely only a matter of time until it came back to prominence.

Unfortunately, the Oligarchs soon got to work making sure that the wealth of the Country was divided amongst the few again. However, they managed to secure major foreign investment (see BP today!) which has helped modernise the economy.

With ample resources, Russia has much to export to the world and this is the basis of its modern economy. Gas exports to Europe in particular but also plenty of oil and ore.

What that does leave is a Country vulnerable to external shocks. Much like the Middle East dictatorships, the budget is decided by the oil price each year. How much can be spent is therefore dependent on the markets. The Russian stock market is one of the most volatile in the world  - in 2009 it dropped 60%.

Of course the main problem in Russia is the lack of the rule of law and the huge corruption that goes with it. Even journalists are not safe and there is much suspicion about state backed assainations and other nefarious activities. Due to this Foreign investment has fallen off and as with BP already mentioned, even profitable businesses are too much effort and too dangerous for foreigners to contend with on a large scale.

Russia too remains a rogue state in the world, determined to see off the West where it can and protect its allies at all costs. Co-operation with Iran and the current stalemate in Syria show just how seriously Russia views its role.

At the last election though there were signs that the middle classes have had enough of the political charade. Russians in general have a poor lot, men with a terrible death rate and the Country is shrinking in population (although recent policies on taxes have slowed this right down from a Japan style peak),

If the West suffers more and commodity prices continue to fall, we can guarantee Russia will suffer a bad recession. As such, it is perhaps the brittlest of the BRICs.