BRICs Come Tumbling Down

The sub-prime flu attacking the world's largest economies has taken another victim. Brazil's GDP data, released this morning, showed the economy shrank nearly 4 percent between September and December 2008, the most since records began in 1996.

But Brazilians might beat their own record in the first quarter of 2009, as a thrifty American consumer and less demand for oil have hit Brazil hard. Overall exports fell 26 percent in the first two months of this year, and they make up one-third of GDP.

The Brazilian stock market, called the Bovespa, has rallied on the back of this dreadful GDP data. Sound counterintuitive? Shrinking GDP could force the Brazilian central bank to cut interest rates, and stock markets usually like lower interest rates.

The Bovespa has posted a substantial gain this year -- yes, I said gain -- it is up nearly 20 percent since the start of the year. But if this recession gets any deeper, the Bovespa might start to show signs of strain as investors bail out of this last bastion of hope for the global economy.

At the start of this crisis the BRICs -- Brazil, Russia, India and China -- looked like they might be able to avoid the calamities facing Europe and the U.S. Not anymore.

China and India have announced stimulus packages, a la the U.S., to boost their economies, and Russia is beginning to realize the perils of relying too heavily on oil revenues. This adds to the evidence supporting the gloomy outlook for the global economy released yesterday by the World Bank.