BRICS Outpaces the G7

The BRICS countries - Brazil, Russia, India, China, and South Africa - are expected to surpass the US-led Group of Seven (G7) nations in terms of their contribution to the world's economic growth from this year onwards. According to Bloomberg’s most recent calculations based on the latest IMF data, in surpassing the G7 (comprised of 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% of the world total by 2028, while India will also pass the US and contribute 12.9% by this time.

This trend is not surprising considering the high rate of growth in BRICS countries such as India and China compared with G7 countries like the UK and Japan. The IMF data is based on nominal GDP which is calculated based on the US 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 like India, where goods and services are cheaper.

To account for these differences in purchasing power, economists use a measure called GDP PPP (purchasing power parity), 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 which suggest 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, de-dollarization 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 de-dollarization 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 which could take time to materialise. Nevertheless, there are other forms of de-dollarization 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 US.

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 UAE, and Malaysia. As major energy importers, the use of domestic currencies for trade settlements could reduce the cost of imports for major BRICS economies like India and China while providing them with enhanced political autonomy from the United States.

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 potentially 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 very strong ties with Russia, and its trade with Russia in the wake of the conflict in Ukraine has surged to nearly $50 billion per annum. De-dollarizing 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, South Africa 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, South Africa clearly recognises the importance of BRICS and could play a crucial role in facilitating BRICS expansion under its chairmanship this year.

Many countries are interested in joining BRICS, with Russian Foreign Minister Sergey Lavrov stating that “more than a dozen” nations have expressed interest in joining, including Algeria, Argentina, Bahrain, Bangladesh, Indonesia, Iran, Egypt, Mexico, Nigeria, Pakistan, Sudan, Syria, Türkiye, the United Arab Emirates, and Venezuela. BRICS expansion would naturally see the bloc make up an even greater share of the global economy, which in turn 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.