Booms, busts and protests – normal life in emerging countries – by Ruchir Sharma (Financial Times – July 1, 2013)

http://www.ft.com/home/us

Unrest and slowdowns mark the end of a placid decade, writes Ruchir Sharma

Protests erupt in the formerly happy middle classes of Turkey and Brazil. A credit crisis threatens the Chinese economic juggernaut. Money flees the stocks, bonds and currencies of emerging nations. Is this the end of the emerging world miracle? Not exactly. This marks a return to the normal postwar cycle of recession and recovery, political unrest and calm, after a misleadingly placid decade.

This age is chaotic only in comparison to the brief “Goldilocks” era that began in 2003. Before that year, the emerging world’s share of global economic output had been stagnant for half a century and in decline for a decade, undermined by debt crises that struck from Thailand to Russia. By the late 1990s, these emerging nations were turning to a new generation of leaders, headed by the likes of Luiz Inácio Lula da Silva in Brazil and other giants, including Vladimir Putin in Russia and Recep Tayyip Erdogan in Turkey.

These leaders laid a stable economic foundation for the boom that began in 2003 after the US Federal Reserve and other central banks cut interest rates sharply to engineer a recovery from the technology bust. Much of the resulting easy money flowed into the emerging world, doubling the average annual gross domestic product growth rate to about 7.5 per cent from 3.6 per cent in the previous two decades.

This boom was unprecedented. Normally, each emerging nation is at a different stage in its economic life, in which crisis gives birth to reform, which flowers into a boom, which matures into political complacency, which ages into a new crisis. By 2007 virtually every emerging nation was in a boom – only three of 150 emerging economies contracted that year – creating the illusion of a world populated only by the young and content. The middle classes embraced their leaders as heroes; Lula, Mr Putin and Mr Erdogan won re-election by growing margins.

Then, in 2008, the credit crisis erupted in the US, making emerging nations look even stronger. By mid-2009, emerging economies were growing a record 9 percentage points faster than developed economies. Convinced these countries had discovered a fountain of perpetual growth, money flowing into emerging market stocks rose by 500 per cent between 2005 and 2010.

For the rest of this article, click here: http://www.ft.com/intl/cms/s/0/9d7ad40e-e243-11e2-87ec-00144feabdc0.html#axzz2YHF4CBOV