Have the BRICS Surpassed the G7?

Previously comprising Brazil, Russia, India, China, and South Africa, the BRICS has expanded to include several new members this year, including Ethiopia, Egypt, the UAE, and Iran. Additional members have increased the economic clout of the bloc. The BRICS now account for roughly half of global wheat, rice, and oil production, as well as almost half the world’s population.

BRICS countries are also achieving higher rates of economic growth than the Group of Seven (G7) nations. According to forecasts from the New Development Bank, the BRICS will account for 40% of global economic output by 2028, while the G7’s share could decline to just 28%. Meanwhile, according to the IMF, only the US and Canada are forecast to grow faster than South Africa this year, with every other BRICS state expected to outperform every other G7 member.     

BRICS Is Minting Billionaires

The inaugural BRICS Wealth Report, co-published by Henley & Partners and New World Wealth, estimated total investable wealth within the BRICS bloc of USD 45 trillion. Over the next decade, the millionaire population in these countries is projected to surge by an impressive 85%.

Cape Town is anticipated to become the fourth fastest-growing wealth centre per capita within BRICS, adding 6000 new millionaires to a current estimate of 7,500. Riyadh, the capital of Saudi Arabia, is predicted to do even better, becoming the fastest-growing wealth hub among the BRICS countries with a projected 90% increase in millionaires from 18,000 to 35,000 by 2033.

These recent reports and economic forecasts indicate BRICS countries are reshaping the global economic landscape, challenging assumptions about where wealth is created and resides. This is part of an on-going trend which may have already seen the BRICS eclipse the G7.  

The Decline of Germany and Japan

Germany has overtaken Japan to become the world’s third largest economy in dollar terms, ten years after Japan yielded second place to China. Although this is largely the result of a declining yen, which may benefit Japanese exporters, structurally, Japan’s labour shortages and low birth rates remain a major problem. Despite efforts to boost the birth rate, the Japanese population is still shrinking rapidly, and its labour shortages are expected to worsen despite Japan welcoming record numbers of foreign workers to its historically isolationist shores.  

Germany faces similar challenges. Like Japan, Germany lacks natural resources, grapples with an aging population, and is heavily reliant on exports. Higher global interest rates and a chronic shortage of skilled labour have compounded the nation’s mounting economic woes. Russia has overtaken Germany to become Europe’s largest economy by GDP PPP, while Germany has been negatively affected by higher energy prices after cutting back on cheaper Russian supplies.

German commercial property prices plunged by a historic 12% in the last quarter of 2023, and there are concerns that the construction sector (which accounts for 12% of GDP and employs over a million workers) could continue to suffer. Property values in Germany have experienced their sharpest declines in decades after the European Central Bank raised interest rates to tame unprecedented eurozone inflation.

In contrast, there is no shortage of labour or natural resources in BRICS. Emerging market India is set to surpass both these advanced economies in terms of nominal GDP by 2027, while China's impressive dominance in electric vehicle production has seen them overtake both Germany and Japan as the world's largest exporter of automobiles.

US Debt Crisis

While the US is still the largest and fastest growing G7 economy, large increases in public debt compounded with the threat of de-dollarisation, could force the government to cut spending or raise taxes at some point in the future. This may negatively impact a US economy increasingly reliant on loose fiscal and monetary policies to spur economic growth.

The US national debt is already $35 trillion and the latest report from the Congressional Budget Office (CBO) predicts even larger deficits over the coming decade, with an annual shortfall of around $3 trillion by 2034. The government could spend over $12 trillion on interest costs alone during this period, with net interest costs as a share of GDP at its highest level since WWII.

Higher interest rates have driven up the deficit further, as the government borrows more money to service existing debts. Meanwhile, higher health care costs for an ageing population create additional headwinds for fiscal consolidation. Altogether, this is forecast to lead to a $19 trillion increase in the national debt over the next decade, reaching an eye-watering total of $54 trillion.

The problem of an ageing population is compounded by US fertility rates which have dropped to 1.62 births per woman, the lowest rate recorded since records began in the 1930s. While China is also struggling with low fertility rates, China’s urbanisation rate is just 66% compared with the US at 80%. This means China can still bring millions of rural workers into its urban workforce.

Machines and artificial intelligence could also assist China in offsetting labour shortages in its largely manufacturing and export driven economy. On the other hand, the benefits of AI are less clear cut for America’s consumption and services led economy, with the technology threatening to replace the white collar wage earners who drive the United States’ consumption led growth.  

These structural economic vulnerabilities within the once dominant G7 have coincided with various political crises, from Brexit to assassinations, culminating in Joe Biden’s withdrawal from the up-coming race for the White House. With the exception of Meloni in Italy, the group’s political leaders face record low favourability ratings, which have already resulted in massive electoral defeats for the former incumbents in the United Kingdom and France.    

The resource rich BRICS bloc are growing faster than the G7, both as individual nations and as a grouping, with members like India and China rapidly overtaking Germany and Japan. The Group of Seven’s largest economy, the United States, faces a potential debt crisis, while the rest of the alliance is riddled with domestic political instability. Considering all these factors together, one is forced to consider the possibility that the BRICS have already surpassed the G7.