BRICS Nations Warn of Volatility as U.S. Fed Begins Tapering

Brazil, Russia, China, India and South Africa raised concerns about the threat the U.S. Federal Reserve’s tapering plans have on emerging-market economies as they struggle to boost economic growth.

The reduction in the bond buyback program will create “huge volatility,” said Liu Mingkang, former chairman of the China Banking Regulatory Committee, during a panel discussion in Davos about the BRICS, the acronym used for those five countries.

The Federal Reserve announced last month it will cut its $85 billion-a-month stimulus by $10 billion in January, potentially reducing capital flows into other economies. The Fed’s decision followed data that showed the U.S. has created more jobs than expected, pointing to a recovery in the world’s largest economy.

That recovery doesn’t signal a rebound for the world economy, Russia’s Deputy Prime Minister, Arkady Dvorkovich, said on the panel.

“We do not see any real recovery,” he said. “All those signs of recovery, from our perspective, are not sustainable.”

China’s manufacturing may contract for the first time in six months in January, according to a survey from HSBC Holdings Plc and Markit Economics, released today. That’s adding to risks for an economy that’s facing potential defaults on high-yield investment products and elevated borrowing costs.

South Africa’s economy probably grew 1.9 percent last year, the slowest pace since a 2009 recession, according to government estimates.

“There are going to be some shifts, but hopefully those shifts will not be shocks,” Pravin Gordhan, South Africa’s finance minister, said.

Since the Fed’s announcement on Dec. 18, South Africa’s rand has dropped about 6 percent against the dollar, the worst performer of 16 major currencies tracked by Bloomberg.

To contact the reporter on this story: Rene Vollgraaff in Johannesburg at rvollgraaff@bloomberg.net

To contact the editor responsible for this story: Nasreen Seria at nseria@bloomberg.net

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