How the BRIC economies could surpass the West

0

DAN STEINBOCK

While some argue that the BRICS are fading away, the structural potential of large emerging economies remains impressive. By the early 2030s, their combined economic power will surpass that of major advanced nations, despite growth deceleration.

Recently, the BRICS nations—China, India, Brazil, Russia and South Africa—had their annual summit in Xiamen, China’s Fujian province and China Daily requested my forecast about the BRICS’ future. Despite new uncertainty and volatility, I believe that the BRICS continue to have significant growth potential which is evidenced by their progressive expansion. (Originally, the first four were grouped as BRIC, or the BRICs, before the inclusion of South Africa in 2010.)

Of the five countries, only South Africa does not fulfill the criteria of a true BRIC economy; that is, large population, strong growth record and great catch-up potential. But it has historically played a central role in African governance.

As global economic prospects now look brighter in the major advanced economies—the United States, Western Europe and Japan—some observers believe their recovery will weaken the role of the BRICS in global economy and governance. But they mistake near-term cyclical fluctuations with long-term structural transformation.


China the largest economy by late 2020s
The four key BRIC economies are often compared with major advanced economies, or the so-called G6: the United States, Japan and the four core European nations—Germany, UK, France and Italy.

In 2000, China’s economy was still barely a tenth of that of the US, whereas Japan’s GDP was as large as the three largest European economies combined: Germany, the UK and France. Brazil was struggling for stability, the Russian economy had been crushed by US-led “reforms,” while change was only beginning in India.

By the early 2010s, the world economy looked very different. The US economy was still more than twice as big as that of China but Japan’s growth had been penalized by stagnation. Chancellor Merkel’s Germany and President Sarkozy’s France ruled over Europe. In Brazil, the Lula era brought about a dramatic catch-up, while reducing historical income polarization. In Manmohan Singh’s India, growth was accelerating. In Russia, President Putin had multiplied the size of the economy by almost six-fold.

If China can stay on course, the size of its economy is likely to surpass that of the US by the late 2020s. Despite growth deceleration, which is normal after intensive industrialization, China will continue to enjoy strong growth until the 2030s, whereas US growth is slowing, thanks to the maturing economy and aging demographics.

Should President Trump succeed in the plan to cut immigration by 50 percent, US productivity and growth would deteriorate significantly more. In Europe, the net effect of anti-immigration sentiment is likely to generate similar adverse damage. In Japan, Prime Minister Abe’s economic reforms have failed, but as population is rapidly aging, he has paved way for greater immigration flows.

By 2050, the Chinese economy could be almost 50 percent bigger than its US counterpart, while the Indian economy may follow in its footprint and surpass America a few years later. Despite continued though slow growth, Japan and the core EU economies are likely to follow far behind (Figure 1).

FIGURE 1 THE BRICs AND G6 COUNTRIES, 2000-2050 (USD TRILLION)

Source: 2000-2020 IMF data; 2020-2050, DS projections

In early 2030s, emerging economies will override the West
What will the catch-up by the BRICS economies mean in terms of global economic power? In 2000, the major advanced nations of the West, as reflected by the G6 (the US, Japan, Germany, the UK, France, and Italy), were almost 10 times bigger than the BRICs.

In the aftermath of the global crisis, their dominance had shrunk dramatically. In 2010, they were only three times as large as the BRICs.

In the coming decade, secular stagnation in the US, Western Europe and Japan will sustain relatively low growth, whereas large emerging economies, despite relative growth deceleration, are likely to continue their historical catch-up.

In barely a decade and half—by the early 2030s—the BRICs collective economic power will surpass that of the G6. And by the mid-21st century, the BRICs could be some 50 percent bigger than their advanced counterparts (Figure 2). In absolute terms, the West will not decline; but in relative terms, its share in the world economy will shrink significantly.

FIGURE 2 THE G6 AND BRIC ECONOMIES, 2000-2050 (USD TRILLION)

Source: 2000-2020 IMF data; 2020-2050, DS projections

Beware of conflict and instability
But nothing is inevitable in economic growth. Even if the BRIC economies continue to have great growth potential, it does not follow that this potential will be automatically actualized. Could these scenarios be undermined by adverse conditions? Of course.

In effect, a host of economic, political and military challenges could subvert growth scenarios in the major advanced economies and large emerging economies. For instance, misguided economic policies, divisive politics, protracted military conflicts, sustained regional friction, elevated nuclear threats could penalize, slow down, even undermine much of that growth potential.

In one sense, BRIC scenarios may actually not be optimistic enough because they do not not include those large emerging nations that are likely to become more prominent by 2050. That’s when the world’s fourth largest economy could be Indonesia. The size of Mexico’s economy could surpass Germany and the UK, while Turkey’s would surmount France. In turn, the remaining EU nations are likely to fall behind new rising powers, including Saudi Arabia, Nigeria, Egypt, Pakistan, Iran, the Philippines and Vietnam that could each prove bigger than Italy.

These achievements do not require mysterious growth miracles; but they do require reasonable and sustained pro-growth policies that are inclusive. Moreover, large emerging nations are most likely to realize their full potential if they can work together and foster global trade and investment—not least because advanced economies are not likely to give up their privileged position in the world economy without opposition.

If the rise of the BRICS and their successors proves successful, the economic power of the colonized would exceed that of the colonizers by the mid-21st century.

Dr Dan Steinbock is the founder of Difference Group and has served as research director at the India, China and America Institute (USA) and visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see http://www.differencegroup.net/

Share.
loading...
Loading...

Please follow our commenting guidelines.

Comments are closed.