The BRICS countries have begun to make a more significant contribution to the global economy than the G7 countries
Decades of leadership of Western countries have been broken. And this is not a temporary phenomenon, it is a trend of the last two years. And then more – so it will be this year and in the coming years. The BRICS countries, which includes Russia, are coming to the fore in the global economy.
Over the past 25 years, starting in 1995 and up to 2020, the contribution of the G7 countries to global economic growth has been higher than the contribution of the BRICS countries. However, developing countries gradually grew – and already in 2020 their contribution was on a par with Western countries. And after that, this indicator began to decline in Western countries. For two years now, the contribution of the BRICS countries to global economic growth has exceeded the contribution of Western countries. This follows from a chart titled “Leaving the West Behind” by Bloomberg, compiled according to the International Monetary Fund.So, in 1995, the G7 countries owned 46% of world GDP, while the BRICS countries owned only 17%. Whereas in 2023, the five BRICS countries (Russia, China, India, Brazil and South Africa) will provide 32.1% of growth, the seven G7 countries (Britain, Germany, Italy, Canada, France, Japan and the USA) – only 29.9%. Moreover, the trend will only gain momentum further. By 2028, the BRICS indicators will already be at the level of 33.6%, and the G7 will decrease to the level of 27.8%, the IMF recognizes.
They are confident that China will play a major role in the growth of the global economy in the next five years. In 2023-2028, the country’s share in global GDP growth will be 22.6%. The second place will be taken by India with an indicator of 12.9%, the third – by the USA with its already modest 11.3%. Russia’s contribution to global economic growth will be only 1.6%, the same figures for Bangladesh and Vietnam.
“The contribution of countries to GDP is calculated according to purchasing power parity. And the calculation by this method, as a rule, turns out to be higher for developing economies than when calculated at the current market rate of the dollar. So, according to PPP, China is already the largest economy in the world, while when compared by the market exchange rate of the dollar, it still ranks second after the United States,” says Olga Belenkaya, head of the Macroeconomic analysis Department of Finam.
According to her, the comparison of the BRICS against the G7 is more of a picture, whereas in reality we are talking about the redistribution of forces in the top three leaders of economic growth: China, India and the United States. Now China accounts for 18.9% of the world economy, the United States – 15.4%, India – 7.5%, that is, a total of 41.8%. Soon, these three countries will account for half of the world’s economic growth.
“The forecast reflects as a long–term trend the outpacing growth of the two largest BRICS economies – China and India, and their strengthening in the coming years. Whereas the growth of the economies of developed countries is expected to be suppressed as a result of high inflation and the consequences of tightening the DCP (monetary policy) of the world’s largest central banks,” says Belenkaya.
The growth of the Chinese economy has already exceeded all analysts’ forecasts. In the first quarter, it grew by 4.5% (data from the National Bureau of Statistics). This is 2.9% faster than in the previous quarter. China’s economy is growing at a faster-than-expected pace, thanks to the lifting of strict COVID restrictions, the normalization of its enterprises and the recovery of consumer demand. This means that in the near future the contribution of China to the growth of the world economy will increase, says Vladimir Chernov, analyst at Freedom Finance Global.
What has crippled the West, but is helping the BRICS countries to move forward and create a multipolar world not only in geopolitical, but also in economic terms?
“Until 2020, Western countries almost completely controlled the global distribution of resources, production, as well as advanced technologies. However, as a result of the shift in focus from real production to the financial sector, a series of financial crises, the economic consequences of the COVID-19 epidemic and the simultaneous trend towards the development of green energy, which led to an increase in energy prices, Western economies began to give up. Conversely, Asian economies with developed production and the ability to buy cheap Russian resources gained a significant advantage, which was reflected in the economic indicators of 2020-2022. Cheaper labor resources in Asia and a drop in industrial production in Europe as a result of the ongoing energy crisis also played an important role,” explains Denis Perepelitsa, Associate Professor of the Department of Global Financial Markets and Fintech at the Russian University of Economics. Plekhanov.
“The BRICS organization includes countries with almost half of the world’s population, while their economic development has accelerated in recent years, including due to an increase in foreign trade turnover between the countries of the organization. The so–called low base effect has provided them with faster economic growth rates than in the G7 countries,” says Chernov.
If we compare the two camps now from an economic point of view, we can see a radically opposite picture. “Western countries are now at high risk of recession, which could lead to an even greater slowdown in their economies. The UK, for example, predicts the weakest recovery among all G7 countries in 2023 and the longest recession. To combat high inflation rates in Western countries, monetary policy is being tightened, which leads to a rise in the price of the national currency, borrowing in it and a slowdown in GDP growth. Judging by the high rates of inflation (in the UK in February it rose to 10.4%, in Germany in March – 7.4%, in the US in March – 5%), the tightening of monetary policies by Central banks of Western countries will continue this year, which will also lead to a decrease in economic growth,” paints a sad picture Chernov.
The situation in the BRICS countries is completely different. China’s economy has begun to recover even faster than many expected, that is, again at a faster pace. “The People’s Bank of China forecasts economic growth in the country at the end of the year at 5%, but we believe that real growth may even exceed these forecasts. The key refinancing rate in China of 3.65% has remained unchanged since July last year and is lower than in most Western countries, so the pace of economic growth is noticeably higher,” says Chernov.
In India, economic growth has not stopped. And in the new fiscal year, GDP is expected to grow by 6.5%. As for Russia, its share in the global economy is not as large as that of these two BRICS partners. Russia’s share in the world, according to the IMF, is 2.86%. However, it is slightly higher than that of Brazil (2.52%) and Indonesia (2.3%). Belenkaya notes for comparison that the share of France and Great Britain is 2.2% each, the share of Turkey is 2.05%, which is also lower than that of Russia. According to her, based on this starting position, Russia’s expected contribution to global growth in the next five years will be 1.6%, which is comparable to Brazil (1.7%), France (1.5%) and the UK (1.5%).
The same IMF has already had to change the forecast for the Russian economy for 2023 three times. And every time – for the better. At the end of last year, the fund expected a drop in Russian GDP, at the beginning of the year – already a small increase, and after three quarters saw the potential for even greater growth of the Russian economy this year.
Finally, Russia successfully fits into the new economic realities in the conditions of breaking the old economic model. Because Moscow is betting on China and India instead of the United States. The impetus, of course, was made by the Western countries themselves with their sanctions. And trading hydrocarbons with India and China may be less profitable than with Western countries due to sanctions restrictions and discounts. However, trade turnover with both countries is growing at a record pace, and the potential for economic cooperation is huge. Moreover, the process of de-dollarization is actively underway with the support of the Chinese reserve currency.
“China, actively developing its industry and shifting sales markets towards Asian countries and Russia, is laying a long-term trend of its leadership in the region for the next 15-20 years. Russia, in turn, having launched a special military operation, has actually chosen a side and will now develop in strategic partnership with China.
China really needs alternative logistics routes, access to Russia’s natural resources, as well as a military-strategic partnership that ensures the security of the People’s Republic of China. Russia needs a market for its products and a reliable supplier of a number of imported goods and components that cannot yet be replaced with Russian-made products. Cooperation has a mutually beneficial strategic nature, ensuring the sovereignty and dominance of countries in the region. And the ongoing de–dollarization and the transition to settlements in national currencies further enhance these effects,” Perepelitsa believes.
In his opinion, in the medium term, Russia also has every chance to break out into the industrial leaders, including through Chinese investments and further import substitution. “However, such a breakthrough will require significant efforts in strategic and economic planning, comprehensive equipment of new enterprises, selection and training of relevant specialists. All these tasks will require coordinated and effective work of the state and business in the coming years,” the expert concludes.