The Brics countries — Brazil, Russia, India, China and SA — are expected to surpass the US-led Group of Seven (G7) nations in terms of their contribution to the world’s economic growth from 2023 onwards. According to Bloomberg’s most recent calculations based on the latest IMF data, in surpassing the G7 (the US, UK, Canada, France, Germany, Italy and Japan) the Brics group will account for 32.1% of the world’s growth, compared to the G7’s 29.9%.
The G7 has traditionally been seen as the most advanced economic bloc of countries. However, the performance of the Western-led bloc has been declining, and by 2028 the G7’s contribution to the world economy is expected to decrease to 27.8%, while the Brics will account for 35%. The report suggests China will be the top contributor to global growth over the next five years, with its share set to be double that of the US. China’s share of global GDP expansion is expected to reach 22.6% by 2028, while India will also pass the US and contribute 12.9% by that time.
This trend is not surprising considering the high rate of growth in Brics countries such as India and China compared with G7 countries such as the UK and Japan. The IMF data is based on nominal GDP, which is based on the dollar value of goods and services produced within a country’s borders and does not take differences in purchasing power or cost of living into account. Nominal GDP measurements overstate the economic power of G7 countries, where goods and services are more expensive, while underestimating countries such as India, where goods and services are cheaper.
To account for these differences in purchasing power economists use a measure called GDP purchasing power parity (PPP), which adjusts for the relative prices of goods and services between various countries. According to this more accurate metric, the Brics group of countries has already surpassed the G7 in terms of their total economic output. This is in addition to the latest reports suggesting the Brics will make up a greater share of future nominal GDP growth. According to estimates the Brics could account for as much as 50% of global GDP (PPP) by 2030.
Moreover, dedollarisation could see Brics countries increase their share of global GDP (measured in US dollars) simply on a currency-weighted basis. The growing economic influence of the Brics nations combined with accelerated dedollarisation can be expected to enhance the political influence of the bloc while further improving the economic growth rates of its members through reductions in the cost of debt and energy imports, which are primary drivers of economic growth.
The creation of a new currency for trade settlement among the Brics has been suggested as a means of accelerating dedollarisation, but this will be a complicated undertaking that could take time to materialise. Nevertheless, there are other forms of dedollarisation that can be implemented more swiftly, such as a switch to trade in domestic currencies. This has already begun happening in inter-Brics trade with Russia, which has been forced to trade in alternatives to the dollar due to economic sanctions imposed by the EU and the US after the invasion of Ukraine.
Other Brics countries, such as China and India, are also encouraging increased trade in their own currencies, including with non-Brics countries such as Saudi Arabia, Iran, Bangladesh, the United Arab Emirates and Malaysia. As major energy importers, the use of domestic currencies for trade settlements could reduce the cost of imports for major Brics economies such as India and China while providing them with enhanced political autonomy from the US.
For China, this is particularly important in terms of defending its territorial integrity with respect to Taiwan. The US has been known to use economic sanctions as a tool of foreign policy, and if China were to face sanctions it could be cut off from the global financial system, which would have devastating consequences for its economy. By increasing trade in its own currency China can reduce its reliance on the dollar and protect itself from the potential fallout of US sanctions.
For India, the ability to import arms and cheap energy from Russia without interference from the US is equally crucial to its emergence as a global superpower. India has historically had strong ties with Russia, and its trade with Russia in the wake of the conflict in Ukraine has surged to nearly $50bn per annum. Dedollarising its trade will help India maintain crucial economic ties and expand its influence on the global stage while reducing the cost of its energy imports.
Despite receiving a lot of criticism for its neutral foreign policy, SA appears to be the most cautious Brics member when it comes to advancing the Brics agenda as it seeks to safeguard its close political and economic ties to the West. Nevertheless, SA clearly recognises the importance of Brics and could play a crucial role in facilitating Brics expansion under its chairmanship in 2023.
Many countries are interested in joining Brics, with Russian foreign minister Sergei Lavrov saying that “more than a dozen” nations have expressed interest in joining, including Algeria, Argentina, Bahrain, Bangladesh, Indonesia, Iran, Egypt, Mexico, Nigeria, Pakistan, Sudan, Syria, Turkey, the United Arab Emirates and Venezuela. Brics expansion would naturally lead to an even greater share of the global economy for the bloc, which would make it even easier for the participating countries to attract others into their sphere of influence.
While the shift in economic power from the G7 to the Brics is nothing new, it is expected to continue accelerating in the coming years. The addition of new members to Brics could further enhance this trend as the Brics convert their economic power into increased political influence. Meanwhile, any further declines in the dominance of the euro and dollar will simply accelerate the rate at which the Brics outpace the G7.
• Shubitz is an independent Brics analyst.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.