New World Order: Brazil Becomes World's 6th Largest Economy

Includes: ERO, OIL
by: Francis Ayensu

Brazil has overtaken the UK as the sixth largest economy in the world. The world ranking of the most powerful economies based on Gross Domestic Product (GDP) places the US as the most powerful economy, followed by China, Japan, Germany, France and Brazil. The UK is now 7th while Italy, India, and Canada, are in the 8th, 9th and 10th positions respectively, according to IMF.

Brazil, which is one of the five largest emerging economies in the world famously known as the BRICS, has moved a step further in the world's powerful economies ranking. Brazil’s economy has vast natural resources to boost and support growth while the UK’s economy is still struggling through recovery from the global financial crisis that has affected Europe so much. The Brazilian economy is expected to grow 3.5% by year-end 2011, a shortfall from the 7.5% growth the previous year. The UK economy on the other hand is experiencing slower growth and is expected to grow at a 0.9% pace by year-end 2011. Unemployment has risen to an alarming rate and is dominant among the youth at around 20%. The government debt reached 76% of GDP in December 2010.

The dynamics underlying the emerging economy and the developed economy are vastly different. Brazil has a population of about 200 million, which is three times that of the UK (around 60 million). According to the IMF, Brazil has a nominal GDP of $2.5 trillion while that of UK is $2.1 trillion. Per capita nominal GDP is $12 422 for Brazil and $36 119 for UK. The Brazilian economy is supported by abundant natural resources; largely developed agricultural, mining, manufacturing and service sectors; and a large labour force. Brazil’s economy gains from a booming global commodities market for natural resources that it possesses in abundance. The service sector contributes a lot to the country’s economy followed by the industrial sector.

UK economy is largely dominated by the service sector that contributes 73% to the nation’s GDP while the manufacturing sector accounts for a significant part of the national output. The major industries that contribute significantly to the manufacturing sector are the automotive, aerospace, and pharmaceutical industries, which compete globally to other nations’ similar industries.

The new world economic order signals a change in economic power where emerging economies are now bypassing developed economies in economic growth and wealth. China earlier this year became the world's 2nd largest economy when it reached a $ 5.8 trillion economic wealth surpassing Japan, which had been the world's second largest economy for some decades now. India and Russia are also predicted to move further in world ranking in years to come.

The current world economic trend shows that developing economies are becoming emerging economies while old emerging economies are becoming developed economies. The world's fastest growing economies are dominated by African countries, which are developing countries currently in the phase of economic transition as they discover new natural resources, particularly oil.

The financial markets are still volatile after the Christmas holidays. Major concerns are Italian debt auction, which stresses the euro debt woes. A good bet would be on currencies rate and commodities prices. The EUR/USD is bound to swing up and down so predicting its direction would mean taking a long or short position. The EUR/USD movements are triggered by eurozone issues. Oil price is on the surge so being long would reap good investments.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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